Question

A monopolist is considering increasing their revenue by changing price. They estimate that current MR<0. What kind of change should they bring in? To what extent?

Answer 1

If MR<0 it means that currently monopolist producing at point where additional revenue from an additional unit is negative that is by producing goods its total revenue is decreasing. Also when MR<0, through point estimation of elasticity of demand it can be conclude that demand is price inelastic. In the graph below, monopolist currently producing at point A where Quantity is Q1 and price is P1.

When demand is price inelastic it means total revenue and price will move in same direction. So monopolist should increase its price which cause quantity to decrease.

This change will continue till the point where MR become equals to MC. According to the graph, price will increase till P2 where MR=MC at point E.