Changes

Determination of price and quantity supplied by monopolistic firm in the short run

, 03:53, 12 December 2011
Definition of marginal revenue
{{quotation|Marginal revenue curve : Market demand curve :: Marginal cost curve : Average variable cost curve}}
===Relationship between marginal revenue and price-elasticity of demand===

{{further|[[price-elasticity of demand]]}}

The relationship is below:

{| class="sortable" border="1"
! Condition on price-elasticity of demand !! Conclusion for marginal revenue (note that this is the derivative with respect to ''quantity'', not ''price''. The sign conclusion is opposite if we are trying to figure out the rate of change of revenue with respect to price) !! Verbal explanation
|-
| zero || undefined/infinite || vertical demand curve, meaning that a slight increase in quantity leads to an infinitely quick decrease in price.
|-
| between 0 and -1 (in magnitude, between 0 and 1) || negative || the quantity demanded is highly price-insensitive. Thus, the price is highly sensitive to the quantity demanded (by the [[calculus:inverse function theorem|inverse function theorem]], the sensitivies are reciprocal). A small increase in quantity demanded leads to a larger compensating decrease in the price that can be charged to sell out the quantity, causing the total revenue to decrease.
|-
| equal to -1 || zero (total revenue remains constant). || Here price and quantity are inversely proportional to each other.
|-
| less than -1 (in magnitude, greater than 1) || positive || the quantity demanded is highly price-sensitive. This, the price is insensitive to the quantity demanded. A small increase in quantity demanded leads to a smaller compensating decrease in the price that can be charged to sell out the quantity, causing the total revenue to increase.
|-
| infinite || positive, equal to the price || horizontal demand curve, which means that there is a fixed price and the marginal revenue equals that price.
|}
===There is no short run supply curve===