From the following price-output schedule of a monopoly firm, calculate total revenue (TR) and marginal revenue (MR) at each level of output, and state the output level at which marginal revenue turns negative.
| Output (units) | Price (₹) |
|---|---|
| 1 | 20 |
| 2 | 18 |
| 3 | 16 |
| 4 | 14 |
| 5 | 12 |
| 6 | 10 |
| 7 | 8 |
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Start your 14-day free trial to unlock the full solution →Total revenue at any output is price multiplied by quantity, TR = P × Q, and the marginal revenue of a given unit of output is the addition to total revenue caused by producing and selling that one extra unit — that is, the difference between the total revenue at that output and the total revenue at one unit less. Working through the schedule unit by unit:
| Output | Price (₹) | TR = P×Q (₹) | MR (₹) |
|---|---|---|---|
| 1 | 20 | 20 | — |
| 2 | 18 | 36 | 16 |
| 3 | 16 | 48 | 12 |
| 4 | 14 | 56 | 8 |
| 5 | 12 | 60 | 4 |
| 6 | 10 | 60 | 0 |
| 7 | 8 | 56 | −4 |
Notice first that, exactly as expected for a monopolist, marginal revenue at every output beyond the first unit (₹16, ₹12, ₹8, ₹4, ₹0, −₹4) is less than the price (average revenue) at that same output (₹18, ₹16, ₹14, ₹12, ₹10, ₹8) — this is the MR less than AR relationship explained earlier in the chapter, arising because each price cut needed to sell one more unit also applies to every unit already being sold. …
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