Why is marginal revenue different for a monopolist than a perfectly competitive
ID: 1215582 • Letter: W
Question
Why is marginal revenue different for a monopolist than a perfectly competitive mm. Why is marginal revenue twice as steep as demand? A monopolist faces an inverse demand curve P - 10 - 1/2Q^D and has a marginal cost function MC = Q. If this firm acts competitively, what is the price, quantity, and profit? If this firm acts as a monopoly to maximize profits, what is the price, quantity, and profit? Calculate the deadweight loss introduced by the monopoly. What happens to monopoly power as the elasticity of demand changes from -.8 to -.6? What might cause such a change in the elasticity of demand? Give two examples of goods which are rival but not excludable? Argue why these goods fit. Give two examples of goods which arc excludable but not rival? Argue why these goods fit. Consider the provision of a public good. There are two types of individuals, each with marginal benefit functions for the consumption of the good. MB_1 = 10-Q_1 and MB_2 = 8-1/2Q_2. Provision of the good follows MC = Qt where Qt is the total amount provided to the market. Calculate the kinked market demand curve. Give me two functions and the range of prices for each function. If the suppliers acted liked this were a private good, what quantity and price would they try to enforce? Use horizontal summation. What is the problem with private provision of a public good? What is the socially optimal provision of the public good? Use vertical summation. Why should we vertically sum marginal benefits for public goods?Explanation / Answer
Answer 1:
a. It is different due to the difference in the shape of the demand curve. In Perfect Competition, it is horizontally shaped and is perfectly elastic and thus Marginal Revenue is constant. In Monopoly, demand curve or Average Revenue curve is downward sloping and thus Marginal Revenue curve is also downward sloping with slope double as compared to Average Revenue curve.
b. This is true in case of linear demand curve and not in case of non limear demand curve. This can be proved mathematically also. Otherwisw, we know that Total Revenue curve is bell shaped. At the mid point of the TR curve, the MR curve touches the Y Axis and MR is zero. At all the points below it the MR turns negative. Average Revenue curve or the demand curve will touch the Y axis at the point where TR is zero which is beyond the mid point. Thus, the slope of the MR curve will be twice as compared to the AR curve.
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