CLEAR IT UP

Why is a monopolist’s marginal revenue always less than the price?
The marginal revenue curve for a monopolist always lies beneath the market demand curve. To understand why,

think about increasing the quantity along the demand curve by one unit, so that you take one step down the demand

curve to a slightly higher quantity but a slightly lower price. A demand curve is not sequential: It is not that first we
sell Q1 at a higher price, and then we sell Q2 at a lower price. Rather, a demand curve is conditional: If we charge the
higher price, we would sell Q1. If, instead, we charge a lower price (on all the units that we sell), we would sell Q2.

When we think about increasing the quantity sold by one unit, marginal revenue is affected in two ways. First, we

sell one additional unit at the new market price. Second, all the previous units, which we sold at the higher price,
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