So price searchers produce until MC=MR and charge price which is higher than MR. I would appreciate if somebody can explain what would that marginal revenue be. because for price takers it’s clearer, that marginal revenue is the price but for price searchers i don’t associate mr with anything
the easy way to remember is, no matter what type of structure, all profit maximisers produce at MC=MR… now, for monopolies (price searchers), think back to the graph… the MR line is LOWER than the DEMAND line… (usually MR=Demand)… so, it will PRODUCE at the point where MC=MR… but the PRICE it will charge is the point where this quantity intersects the DEMAND line (which is higher than MR)… (you really have to look at a graph to understand this)… but basically, a company will PRODUCE where MC=MR, but will charge the price where this cuts DEMAND… for all others, MR=Demand, so its all good…but for monopolies, D>MR
I have exactly the same trouble with you florinpop. The thing is I used to think of MR as additional revenue due to one more product and MC as additional cost of one more product. This works well for price takers b/c MC = MR = P But the problem is for price searchers. b/c additional revenue for one more product is its price. but price is not = MR ! So I get really lost and dont know what MR means?
Hi I looked it up and it seemed so easy now to understand. Picture this? MR = (change in revenue )/change in output for price takers they sell ALL @ SAME PRICE. This is why their MR = (Price)/1 because every item sold brings in an amount of money = price. for price searchers they SELL @ DIFFERENT PRICES ! This then means their MR is not a constant. Infact that is why their MR graph is sloping downwards. B/c the more they produce the more they can afford to reduce price without affecting revenue. So as you move to the right the price of Quantity 2 is smaller than the price of Quantity1 and you keep producing until the price of an extra product is same as cost of extra product. The only trick was to remember that they sell @ different prices for different demands! …hope this helps
yep thanks