chosen market price. Under monopoly, the price of all units lowers each time a firm increases its output sold, this causes the firm to face a diminishing marginal revenue. Marginal revenue curve and marginal cost curve A company will stop producing a product/service when marginal revenue (money the company earns from each additional sale) equals marginal cost (the cost the company costs to produce an additional unit). Therefore, a company is making money when MR is greater than marginal cost (MC). And when MC = MR, it is called profit maximization. After this point; the company can no longer make a profit. Therefore, it is in their interest to stop production. Relationship between marginal revenue and elasticity The relationship between marginal revenue and the elasticity of demand by the firm's customers can be derived as follows: Taking the first order derivative of total revenue: where R is total revenue, P(Q) is the inverse of the demand function, and e < 0 is the price elasticity of demand written as . Monopolist firm, as a price maker in the market, has the incentives to lower prices to boost quantities sold. The price effects occur when a firm raises its products' prices and increased revenue on each unit sold. The quantity effect, on the other hand, describes the stage when prices increased and consumers quantity demanded reduce. Firms' pricing decision, therefore, is based on the tradeoff between the two outcomes by considering elasticity. When a monopolist firm is facing an Inelastic demand curve (e<1), it implies that a percentage change in quantity is less than the percentage change in price. By increasing quantity sold, the firm is forced to accept a reduction of price for all the current and previous production units, resulting in a negative marginal revenue (MR). As such, as consumers are less sensitive and responsive to lower prices movement and so the expected product sales boost is highly unlikely and firms lose more profits due to reduction in marginal revenue. A rational firm will have to maintain its current price levels instead or increase the price for profit expansion. Increases in consumer's responsiveness to small changes in prices leads represents an elastic demand curve (e>1), resulting in a positive marginal revenue (MR) under monopoly competition. This signifies that a percentage change in quantity outweighs the percentage change in price. Firms in the imperfect competition market that lower prices by