Monopoly, P-Competition, and Marginal Revenue

Here is a difference between monopoly and P-competition. For the P-competitive firm, the marginal revenue is the same as the price, since each unit sold will add the price to revenue. For the monopoly, it is different. In order to sell one more unit, the monopoly has to drop its price a bit. The additional unit sold will add something to revenue, but the cut in price will decrease the revenue from the units the monopoly could have sold at the old price, without cutting. So the net addition to revenue will be less than the price at which the additional unit is sold, and could even be negative -- the lost revenue from the price cut could be more than the price for which the additional unit is sold.

For example, suppose the monopoly is selling 11,000 widgets at $69 each. This gives a total revenue of $759,000. In order to increase sales to 13,000, the monopoly has to reduce its price to $63. The price of $63 applies to the first 11,000 units as well as the remaining 2000 -- all units of output are sold at the same market price. So 11,000 units at $63 per unit yields only $693,000. This is more than made up by the $126,000 earned from selling 2000 more units at $63, leaving a total revenue of $819,000 -- an increase in revenue relative to the $759,000 the monopoly started with, but the increase is not in proportion to the additional sales.