Why does marginal revenue marginal cost give the profit-maximizing quantity for a monopolist?
A monopolist can determine its profit-maximizing price and quantity by analyzing the marginal revenue and marginal costs of producing an extra unit. If the marginal revenue exceeds the marginal cost, then the firm can increase profit by producing one more unit of output.
Why is marginal revenue equal to marginal cost profit maximization?
A manager maximizes profit when the value of the last unit of product (marginal revenue) equals the cost of producing the last unit of production (marginal cost). Maximum profit is the level of output where MC equals MR. Thus, the firm will not produce that unit.
Why price is equal to marginal revenue in monopolistic competition?
Monopolistically competitive firms maximize their profit when they produce at a level where its marginal costs equals its marginal revenues. Because the individual firm’s demand curve is downward sloping, reflecting market power, the price these firms will charge will exceed their marginal costs.
Why is the equality of marginal revenue and marginal cost essential for profit maximization in all market structures?
The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because if: is constant regardless of the quantity demanded. Price can be substituted for marginal revenue in the MR = MC rule when an industry is purely competitive because price: productive efficiency.
How do you determine profit maximizing quantity?
The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost: that is, MR = MC. If the monopoly produces a lower quantity, then MR > MC at those levels of output, and the firm can make higher profits by expanding output.
What is the monopolist’s profit maximizing output price and profit?
The monopolist will select the profit-maximizing level of output where MR = MC, and then charge the price for that quantity of output as determined by the market demand curve. If that price is above average cost, the monopolist earns positive profits.
When marginal revenue is equal to marginal cost?
In equilibrium, marginal revenue equals marginal costs; there is no economic profit in equilibrium.
Why is a monopolist’s demand curve the same as the market demand curve for its product?
Because the monopolist is the only firm in the market, its demand curve is the same as the market demand curve, which is, unlike that for a perfectly competitive firm, downward-sloping.
What is the relationship between price and marginal revenue in monopolistic competition?
For a perfectly competitive firm, marginal revenue is equal to price and average revenue, all three of which are constant. For a monopoly, monopolistically competitive, or oligopoly firm, marginal revenue is less than average revenue and price, all three of which decrease with larger quantities of output.
Why marginal revenue is equal to price?
A competitive firm’s marginal revenue always equals its average revenue and price. This is because the price remains constant over varying levels of output.
What is the importance of the equality of P and MC?
The equality of P and MC means the firms is achieving allocative efficiency; the industry is producing the right product in the right amount based on society’s valuation of that product and other products.
Why might the costs of a purely competitive firm and those of a monopolist be different?
inefficiently because the monopolist does not produce at the point of minimum ATC and does not equate price and MC. pure competitor is small with no market power. the monopoly might experience economies of scale not available to the competitive firm.