FOREIGN TRADE UNIVERSITY

Output
decision
of monopoly
TEAM 2

01
 1.
A MONOPOLY'S
REVENUE
Table 1: A monopoly’s total, average and marginal revenue
 Key take-aways
Increase amount sold Lower the price

Monopoly rises its The output effect

selling amount
The price effect

Monopoly marginal revenue is lower than its price

Its curve lies below demand curve

2.
DEMAND CURVE &
MARGINAL REVENUE
CURVE
 P = a – bQ
2
TR = PxQ = aQ – bQ
MR = a – 2bQ

The price effect > The output effect

--> Negative marginal revenue
3.
HOW TO
MAXIMIZE PROFIT
4. Profit Equation
Profit = TR - TC = (P - ATC) x Q
TR: Revenue P: Price
TC: Costs ATC: Average Total Cost
 5.
RULE OF
PRICING
 MC
__________
Rule of pricing: P=
1
____
1+ E
d

Ed < 0
Thus:
MC = P x (1+1/Ed) < P