Question

With the aid of graph(s), explain why a monopolist will never produce on the inelastic portion of the demand curve.

Answer 1

In the graph, it can be observed that that profit will me maximized at output level(Q*), where MC and MR intersects and projecting that onto the AR curve gives us the profit maximizing price(P*). In the inelastic region, prices would be less than this P*, and quantity produced would be more than Q*, which is not what the monopolist would want. Hence, the monopolist will never produce in the inelastic portion of the demand curve(Here, Demand = Average Revenue).