Question

If a monopolist is unable to price discriminate: why does it choose not to offer anything to a consumer that would be willing to pay more than the equilibrium price, but less than PM? In other words, what would happen at P<P^M?

Answer 1

Answer : Any seller's price level is equal to demand. For monopolist the demand curve lies above the MR (Marginal Revenue) curve. For monopolist the demand is double of MR curve. For monopolist the profit maximizing condition is MR = MC. The monopolist produce and sell that quantity of output level where MR = MC occur. On that quantity level the monopolist charge high price level which is equal to demand. This is the monopoly price level. Now if the monopolist set price below the monopoly price level then the monopolist face some loss because the monopolist can earn more by charging high price level. And setting price below the monopoly price level is not possible for monopolist because the setting price below the monopoly price level will not be equal to demand. Hence the monopolist will not set the price level which is lower than the monopoly price level.