Comparison reveals that inelasticity of demand or the opposite dictates the way price changes affect demand. Establishing the optimum selling price This is very difficult in practice however let us assume that it is possible to establish demand at various selling prices. The lower part of Fig. 12.3 shows the cost and revenue information in terms of the marginal revenue and marginal cost. Note that the Marginal Revenue curve slopes downward to the right as demand increases, reflecting the fact that the slope of the total revenue line decreases as demand increases.
Optimum price is determined by the interesction of the marginal revenue and marginal cost curves.
Put the two together to derive optimal selling price.