Tuesday, December 1, 2015

How does a Monopoly firm maximize profit? Explain in detail.

A monopoly is when a business is the only seller of a product in a market. In many cases, there are laws regulating the actions of companies that are monopolistic. Therefore, there are very few examples of pure monopolies. Examples of regulated monopolies include the electric company and the water utility. Even when a monopoly exists, the firm is subject to the laws of supply and demand. Supply and demand will help determine the profit of a monopoly. A monopolistic company won’t sell its products at the highest possible price because it may not maximize profit at this price. The monopolistic company is always looking to maximize profit.
A company that has a monopoly will maximize its profit by producing products at a level where the marginal revenue is equal to the marginal cost. At this point, the company won’t lose any profit by having any unsold products or by missing an opportunity to sell more products.
Determining the proper amount of a product to manufacture is critical to maximizing a company's profit.
https://www.peoi.org/Courses/Coursesen/mic/fram5.html

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