A profit-maximizing,single-price monopoly must lower its price in order to sell more output.

Question

Quizplus · Accepted Answer

A monopoly faces a downward-sloping demand curve and can increase its revenue by lowering the price and selling more units of output. However, the profit-maximizing price and quantity combination for a monopoly is determined by the intersection of the marginal revenue and marginal cost curves, which means that the monopoly does not simply lower the price without considering the cost of producing additional units. Nonetheless, in general, a monopoly will sell fewer units at a higher price and more units at a lower price, as long as the marginal revenue from the additional unit exceeds the marginal cost of producing it.

A Profit-Maximizing,single-Price Monopoly Must Lower Its Price in Order to Sell