00:01
Explain why a monopolist's marginal revenue curve lies below the demand curve.
00:06
Explain why this leads to the monopolist to produce an inefficient quantity.
00:12
And if a monopolist were operating on the inelastic part of the demand curve, what would the monopolist do to increase profits? so here we have two different things.
00:22
We're going to start with part one.
00:24
Explain why monopolist marginal revenue curve lies below the demand curve and explain why this leads the monopolist to produce an inefficient quantity.
00:32
So this can be explained using the general form of linear demand curves.
00:37
And the linear demand function is p equals a minus b, q, where p is price and q is quantity.
00:47
A is the vertical intercept, and b is the slope.
00:51
So here we have the slope.
00:54
This is quantity.
01:00
This here is the vertical intercept, and this here is price.
01:10
And in this model, a is greater than zero and b is greater than zero.
01:18
Total revenue is price times quantity, which is a times q minus b times q square.
01:29
And marginal revenue is the derivative of total revenue with respect to the derivative of quantity.
01:38
And we get eight minus two b, q.
01:41
Therefore the marginal revenue has a slope that is twice as steep as the slope of the demand curve...