When a single-price monopolist maximizes profits, price is greater than marginal cost. This means...
Question:
When a single-price monopolist maximizes profits, price is greater than marginal cost. This means that buyers would be willing to pay more for additional units of output than the unit costs to produce. Given this, why doesn't the monopolist produce more goods?
Monopoly Output Choices
A firm that has a monopoly faces a downward sloping demand curve. This means that as they lower the price, the more quantity they will sell. However, to increase quantity, they usually have to lower the price for all consumers, which lowers additional (marginal) revenue.
Answer and Explanation: 1
Monopolists are profit maximizers. This means they will produce to the quantity where marginal costs equal marginal revenue. While the buyers would buy more if the price decreases, the monopolist would also decrease their marginal revenue. So, it is not in their best interest to produce more goods, because eventually marginal costs will exceed marginal revenue.
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What is a Monopoly in Economics? - Definition & Impact on Consumers
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Chapter 7 / Lesson 2
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Understand the meaning of a monopoly in economics and what it does. Also, know the characteristics of a monopoly and the different types of monopolies.
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