Since a monopolist necessarily faces the entire market demand, it faces a downward sloping demand curve. This means that, if the firm wishes to increase sales it must lower price. If it wishes to sell less it must raise price. As it turns out this means that, for a firm facing a downward sloping demand curve marginal revenue is different from market price.

    Remember that a perfectly competitive firm could sell all it wished at the market price. This meant that any time it wished to increase sales it needed only to produce more output. For this reason in perfect competition marginal revenue and price were equal. This would not have been true had the firm needed to reduce price to sell more output.

Click Here if you don't see topics listed to the left and below.