The monopolist will fix a higher price if demand is inelastic and a lower price if demand is elastic.
When demand is elastic (Ed >1):
a decrease in price increases total revenue
marginal revenue is positive
When demand is unitary/ unit elastic (Ed = 1):
Total revenue is maximum
Marginal revenue will is zero (intersect with quantity).
When demand is inelastic (Ed < 1):
a decrease in price reduces total revenue
marginal revenue is negative
Demand Curve and Elasticity of Demand
(b) Total Revenue $60,000 0 16 32 Total revenue $3,750 0 16 32 Marginal revenue Elastic (Ed > 1) Inelastic (Ed < 1) Unit elastic (Ed =1) D = Average revenue 1-carat diamonds per day (a) Demand and Marginal Revenue $ per diamond Dollars 1-carat diamonds per day Demand Curve and Elasticity of Demand ↓ Inelastic -ve Maximum Unitary Elastic 0 ↑ Elastic +ve TR PED MR
Long-run is the time period in which the firm can adjust its input used in the production.
A monopolist firm in the long-run is also in equilibrium at a point where MR = MC .
A monopolist that earns economic profit in the short-run may find that profit can be increased in the long run by adjusting the scale of the firm.
A monopoly that suffers a loss in the short run may be able to eliminate that loss in the long run by adjusting to a more efficient size
6.5 Long Run Profit Maximization
Misconception Monopolist CAN earn positive economic profit in the long run. Monopolist seek to maximize PROFIT . Monopolist has BOTH good and bad to the market/society. Monopolist ALWAYS earn positive economic profit in the long run. Monopolist seek to maximize PRICE . Monopolist ALWAYS bad to the market/society. True Wrong