When a single-price monopolist maximizes profits, the price is greater than marginal cost. In...

Question:

When a single-price monopolist maximizes profits, the price is greater than marginal cost. In other words, buyers are willing to pay more for additional units of output than the units cost to produce. Given this situation, why doesn't the monopolist produce more?

Profit maximization

Profit maximization is characterized as the unavoidable objective of getting indulged in the market. This goal is common among firms, but the methodology of this goal is generally different in each firm.

Answer and Explanation: 1

The monopolists act as the single sellers in the market. If they would sell their output at equality of additional revenue and additional costs, then the firms would surely trade goods with economic efficiency. But this equality would not provide much incentive to the monopolist firms for being a single seller in the market. As there is not any firm for competition, this is why the consumers are bound to purchase goods at a greater price relative to costs. Hence, the monopolists do not produce more output which could eliminate the firm's surplus profits.


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Profit Maximization: Definition, Equation & Theory

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Chapter 24 / Lesson 6
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Learn the profit maximization definition, its importance, and explore the profit maximization theory. See how to calculate profit maximization with examples.


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