Total Cost and Total Revenue for a Monopolist
What is Total Cost and Total Revenue for a Monopolist?
Written by Jason Gordon
Updated at March 17th, 2023
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What is Total Cost and Total Revenue for a Monopolist?
The total cost curve has its typical shape - total costs rise and the curve grows steeper as output increases.
Low levels of output bring in relatively little total revenue, because the quantity is low.
High levels of output bring in relatively less revenue, because the high quantity pushes down the market price.
The total cost curve is upward-sloping. Profits will be highest at the quantity of output where total revenue is most above total cost.
The profit-maximizing level of output is not the same as the revenue-maximizing level of output, which should make sense, because profits take costs into account and revenues do not.
Total revenue, though, is different. Since a monopolist faces a downward sloping demand curve, the only way it can sell more output is by reducing its price. Selling more output raises revenue, but lowering price reduces it. Thus, the shape of total revenue isn’t clear.