Page "Monopoly" Paragraph 41

The fact that a monopoly has a downward-sloping demand curve means that the relationship between total revenue and output for a monopoly is much different than that of competitive companies.

Total revenue equals price times quantity.

A competitive company has a perfectly elastic demand curve meaning that total revenue is proportional to output.

Thus the total revenue curve for a competitive company is a ray with a slope equal to the market price.

A competitive company can sell all the output it desires at the market price.

For a monopoly to increase sales it must reduce price.

Thus the total revenue curve for a monopoly is a parabola that begins at the origin and reaches a maximum value then continuously decreases until total revenue is again zero.

Total revenue has its maximum value when the slope of the total revenue function is zero.

The slope of the total revenue function is marginal revenue.

So the revenue maximizing quantity and price occur when MR =