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Common sense might say that a monopolist would produce more output than a competitive industry, facing the same marginal costs
Common sense might say that a monopolist would produce more output than a competitive industry, facing the same marginal costs. After all, if you're making a profit, you want to sell as much as you can, don't you? What's wrong with this line of reasoning? Why do monopolistic industries sell less than competitive industries?
Expert Solution
A monopolist like any other industry will like to maximize its profit. To do that, they would like to match their marginal cost with the marginal revenue and product at the point where these two meets.
Producing too many goods will decrease the price of the goods in the market as the supply is more and price will come down, producing too less will increase the price but the profit will not be much. A monopolist wants to maximize it.
Producing at a point where the MR and the MC are same a monopolist keeps the elasticity of the good close to 1 and earn a maximum profit in the market. This output is less than the optimal output the same firm will produce in the perfect market condition but it increases the price and decreases the output maximizing the profit.
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