Market Conditions

Market Conditions

In perfect competition, there is a difference between the market demand curve and the demand curve for the output of an individual firm; when the firm acts as a price taker it views its demand curve as being horizontal with average revenue equal to marginal revenue. However, under monopoly, there is only one firm in the industry and so there is no difference between the demand curve for the industry and the firm. Since a normal demand curve is assumed, it is necessary for the monopolist to reduce price in order to increase the quantity sold. In other words, in order to increase sales the monopolist must reduce the price of all goods sold and therefore marginal revenue will always be less than average revenue under monopoly.