AP Microeconomics
Why Marginal Revenue Falls Faster Than Demand
For a monopolist, marginal revenue falls faster than demand because the firm must lower the price on all previous units sold to sell one additional unit. This price reduction on existing sales reduces the marginal revenue gained from the new sale.
Key Takeaways
- Why is MR less than Price? (Monopolist must lower price on all units to sell more)
- Why does MR fall faster than Demand? (Price reduction affects all previous units, not just the new one)
- Profit Maximization: Monopoly produces where MR = MC
- Allocative Inefficiency: Monopoly produces less than the socially optimal quantity (where P = MC)
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Draw a monopoly practicing perfect (first-degree) price discrimination. Label the profit-maximizing quantity and the area of economic profit.
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Learn MoreInstructions
Draw a monopoly practicing perfect (first-degree) price discrimination. Label the profit-maximizing quantity and the area of economic profit.
Check Your Understanding
Question 1 of 2
For a monopolist marginal revenue falls faster than price because
the cost of producing extra units of output increases as production is increased.
to sell additional units the price must be lowered on all units sold.
marginal revenue is larger than price.
profits are maximized when marginal cost equals marginal revenue.
the firm has no supply curve.