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 Monopoly and profit maximisation

To maximise profits (or minimise losses), the monopoly has to produce where marginal revenue MR = marginal cost MC.  This is indicated by point E, which points to a quantity Q1.    

At lower levels of output than Q1, for instance Q2, marginal revenue MR is greater than marginal cost MC. The firm will therefore be able to add to its profits by expanding production.

At higher levels of output than Q1, for instance Q3, the cost of each additional unit of output MC is greater than the additional revenue MR earned by selling it.  Total profit will therefore decline if the firm continues producing beyond Q1.

The price charged by the monopoly will be the price that consumers are willing to pay.  This price is given by the demand curve.  Consumers are willing to pay a price of P1 for a quantity of Q1.  The equilibrium price is therefore P1 and the equilibrium quantity is Q1

Whether the monoploy makes a profit in equilibrium will depend on its total cost and total revenue or average revenue and average cost. (more)

Because entry to the industry is blocked, the monopoly can continue to earn economic profits in the long run.
If a monopolistic firm wishes to increase it sales, it must decrease the price of the product.
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