I know that B is correct, my question is that can’t A be right? Why? Which of the following statements regarding a monopolist is most accurate? A) A monopolist will maximize the average profit per unit sold. B) A monopolist, like any other profit-maximizing firm, will sell at the output level where marginal revenue equals marginal cost. C) If a firm has a monopoly, it will always be able to earn economic profits. D) A monopolist will charge the highest price for which he can sell his product. Your answer: A was incorrect. The correct answer was B) A monopolist, like any other profit-maximizing firm, will sell at the output level where marginal revenue equals marginal cost. The demand curve for monopolists slopes downward to the right reflecting the fact that a higher price results in lower demand. Monopolists maximize profits by expanding output until marginal revenue equals marginal cost.
Because there is more money to be made by increasing the output. Suppose that I invent a perfect artificial heart that is a 100-yr, no-maintenance good-as-new replacement for a failing human heart. If I make one and auction it on EBay, I will get lots of money for it. If I have no fixed costs (unlikely here) this will maxiize my profit per unit sold. If I have fixed costs, I keep auctioning hearts on eBay and my profit per unit sold will increase as I’m dividing my FC by more production which is helping more than decreasing price is hurting. As with all good things, eventually my average profit per unit sold will drop if I sell one more as the price drops. I don’t really care about that though because my fixed costs are sunk and as long as my variable costs for producing my artficial heart are $2000/heart but I can sell them for $500,000 I’m going to keep doing it.