### Exploring Demand--Solved

One of the three fundamental tasks of a firm is to sell output. Economists discuss this part of the business with a demand curve. The table below shows two demand curves that represent two different markets. They could represent two different firms, or a case in which one firm is selling two different goods or services. In which of these markets is the firm a price taker? Market for Widgets
In which is it a price searcher? Market for Getwids

Marginal revenue is the additional revenue that a firm gets from selling one more unit of output. In the two tables below, fill in the marginal-revenue columns. (If you have problems, try to first compute the total revenue, and from that get marginal revenue.)

 Market for Widgets Market for Getwids Price Quantity Demanded Marginal Revenue Price Quantity Demanded Marginal Revenue \$10 1 \$10 \$10 1 \$10 \$10 2 \$10 \$9 2 \$8 \$10 3 \$10 \$8 3 \$6 \$10 4 \$10 \$7 4 \$4 \$10 5 \$10 \$6 5 \$2

A demand curve is a boundary that limits sellers. What will the demand curve for widgets shown above look like if we draw it? A horizontal line The region in which the firm is allowed by this demand curve is the area below/to the left of the demand curve.
With the first demand curve, where price and hence average revenue is constant, marginal revenue is equal to price. In the second demand curve, where price is rising and hence average revenue is rising, marginal revenue is less than price.
What should matter to the firm when it decides how much of a product it wants to sell, the price or the marginal revenue? Marginal revenue
The demand curve that a monopolist faces is similar to the demand for getwids.
Suppose the firm facing the second demand curve can sell the first at \$10, then sell another for \$9.00 but still keep selling the first at \$10, etc. This pattern of pricing is a form of what economists call price discrimination. What would the marginal revenue of the third getwid be in this case? \$8

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