As per the example above, the MR curves are shown in the figure below.
So, whenever the production (Q) is increased the revenues also increase (output effect)
But if price decreases then revenues also decrease (price effect).
The figure shows that MR could even be negative if the price effect exceeds the output effect.
As in the case of a competitive firm, a monopolist maximizes profit by producing the Q where MR = MC.
Once the Q is found, it sets the highest price consumers are willing to pay for that Q.
The P is identified from the D curve.
The profit-maximizing Q is where MR = MC.
Identify P from the demand curve at this Q.
The monopolist's profit is shown below as with a competitive firm: The monopolist's profit = (P − ATC) × Q
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Date of last modification: 2019