|
13. Most firms can't engage in price discrimination. Instead, they must sell all planned output at the same price. This means that any plans to expand output mean lowering the price of all units that are to be sold, not just the extra output. This, in turn, means that the marginal revenue of the added output must reflect the fact that all planned units are being sold at a lower price. The table below illustrates how marginal revenue (MR) works when a firm must reduce the price of all planned output if it wishes to increase sales. Notice that by the 6th unit of output MR is only half of the market price.
|
| Q |
P |
TR |
MR |
| 1 |
15 |
15 |
15 |
| 2 |
14 |
28 |
13 |
| 3 |
13 |
39 |
11 |
| 4 |
12 |
48 |
9 |
| 5 |
11 |
55 |
7 |
| 6 |
10 |
60 |
5 |
| 7 |
9 |
63 |
3 |
| 8 |
8 |
64 |
1 |
|
