Marginal revenue means the added revenue from a small increase in sales, usually a single unit. We learned that profit maximizing firms will produce where MC=MR. So, in order to determine how a profit maximizing monopolist will choose optimal output we need to know the firm's marginal revenue as well as marginal cost.

   In understanding marginal revenue it is crucial to keep in mind the idea that a firm must sell all its output at a single price. This kind of firm sets market price at the beginning of some market period (it could be a week, a month, or a year or any other period). Some firms place advertisements giving prices, or print up boxes with the price of the item printed the box.

  Some firms sell at different prices to different people, or sell at one price for a period of time then have a "sale" somewhat later. These are examples of price discrimination which we will also consider, but for now let's examine the simple case.

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