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# Marginal revenue and marginal cost in imperfect competition

This video discusses the differences in a graph of marginal cost and marginal revenue for an imperfectly competitive firm compared to a perfectly competitive firm.

## Want to join the conversation?

• 1) Do we posit that demand decreases in the imperfectly-competitive market () because the firm would need a higher price to produce more...which would decrease demand?

More generally, how are the demand-, marginal revenue-, and price curves related here?

2) Is the 'inefficiency' (), multiplied by quantity, the firm's profit?

3) Does the inefficiency () invite competitors (assuming they can produce a similar-enough product)? I can see this in 2 ways: 1, (if the inefficiency is profit) others may wish to claim some of the profit; 2, the inefficiency reflects an unsupplied demand that another firm could supply while keeping MC </= MR.
• 1) In an imperfectly competitive market, the demand curve for a firm is downward-sloping because as the firm produces more, the price it can charge for its product decreases. The marginal revenue curve is even steeper than the demand curve because for each additional unit sold, the firm not only loses the price it could have charged for that unit but also the potential revenue from all previous units due to the lower market price.

So, while the demand curve shows the price the firm could charge at each quantity, the marginal revenue curve shows the additional revenue from selling one more unit. The price curve is the market price, which is above the marginal revenue curve but below the demand curve.

2) The inefficiency, as described in the video, refers to the difference between the price and the marginal cost at the optimal quantity. This gap represents lost potential profit for the firm because they are not producing at a quantity where the price equals the marginal cost. So, yes, the inefficiency multiplied by the quantity can be seen as the forgone profit for the firm.

3) The inefficiency could potentially invite competitors, especially if they can produce a similar product. If the inefficiency is seen as lost profit, other firms might enter the market to capture some of that profit. Additionally, the unsupplied demand indicated by the inefficiency represents an opportunity for another firm to enter the market and supply that demand, keeping their marginal cost below or equal to the marginal revenue.
(1 vote)
• Something doesn't seem to make any sense.

MAYBE It's because in "marginal revenue" comparisons here we are not just comparing the scenario where "one more item" is sold at the market price.

If the market price is \$10, then the marginal revenue for every single item sold would be \$10. But for some reason we're comparing different scenarios entirely, in this vid and the last, eg the scenario where they are sold for \$50 as market price for all, compared with the scenario where they are sold for \$10 market price for all. But within each of those scenarios, the "marginal revenue" is not being treated as the revenue for selling "one more item" at the market price AT ALL.

Anyway, the point is this: if the demand curve represents how many would be bought at a specific price,(as suggested eg in onwards) then up until the marginal cost = the "amount that would be bought at a specific price" then there is still profit, and the marginal revenue exceeds the marginal cost.

If selling "one more" at a given price brings in more money than the marginal cost, how can it ever POSSIBLY be the case that the "marginal revenue" is actually BELOW the "marginal cost" as alleged in this video, and building on "types of competition and marginal revenue"?
• Marginal revenue is the "revenue from selling one more item," but more specifically it's the "change in total revenue if we sell one more item."

If we sell another item (called I) and Price is still above MC, the cost of producing I will be less than the price we can sell it for; so yes, we would make a profit on I.
BUT, following the downward slope of the demand curve, if we sell I, we would be accepting a lower price, on all of the items we sell. So although we get a profit from selling I, we LOSE REVENUE bc we're selling all our other items at a lower price than before. If the extra profit we get from selling I doesn't outweigh the effect of us losing revenue from having to sell everything else at a lower price, then it wouldn't make sense for us to sell I, even if we could make a profit from I.
• I need help
On the graph of imperfect competition, the lines of demand and marginal revenue differs as soon as a little bit unit is sold. But I think at quantity 1, the marginal revenue is the price at quantity 1, as well as demand. So the marginal benefit should move away from demand after 1 unit is produced. That confuses me.
Help is sincerely appreciated