Why is marginal revenue less than price in a monopoly?

1 Answer
Oct 31, 2015

A monopoly firm tries to sell more by reducing its price. Hence its MR is less than Price.


Look at the following table.
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A Monopoly firm reduces its Price. The TR is given in the third column. MR is calculated from TR. Its value are given in the 5th column. MR is additional revenue made to the total revenue by selling one more unit.

When he sells 2 units the total revenue is 36. When he sells 3 units the TR is 48. Increment in sales is one unit. This additional units brings in a net revenue of #48-36= 12#

This is because as the price falls the the TR is increasing at a decreasing rate