Profit Maximization in Monopoly

Monopolists influence prices as price makers, but more can be sold only by lowering prices.

Profit maximization happens at a level where marginal cost equals marginal revenue.

Here, marginal cost is the cost of each extra unit produced, while marginal revenue is the additional revenue from each unit sold.

At this level, additional costs are offset by additional revenue for optimal profitability.

Imagine a smartphone manufacturer operating as a monopoly. As his production increases, the MC per unit rises, forming an upward-sloping curve.

The MR curve is steeper and downward-sloping, as prices need to be lowered to sell more.

If the monopolist stops producing before reaching this equilibrium, he will lose out on additional profit, as making additional units beyond this point would contribute more revenue than the cost incurred.

On the other hand, losses will occur if it continues production beyond this point, where MR  is less than MC.

This suggests that the optimal production level is where MC  equals MR, and the MC  Curve intersects the MR  curve from below.