Question

Explain why a single price monopolist will never produce in the inelastic range of its demand curve.

Answer 1

The profit of the monopolist is maximised when MR=MC

In the inelastic region of the demand curve, when firm increases the price of its product through reduction in quantity, then total revenue will increase and total cost would decline. The profit of the monopolist will keep on rising with reduction in output.

Thus, whenever the monopoly is operating on the inelastic portion of the demand curve, lowering the output will keep on increasing the monopoly profits and it is difficult to attain an equilibrium. Therefore, the monopolist operates on elastic portion of the demand curve.