It will be able to cut the cost of its goods by utilising economies of scale. When a monopolistically competitive firm produces 50 units of product at a marginal cost of $1.674 per unit and a marginal revenue of $2,000 per unit, the average profit is $326.
By examining the marginal revenue and marginal costs of producing an additional unit, a monopolist can estimate its profit-maximizing price and quantity. When the marginal revenue is higher than the marginal cost, the company should produce an additional unit. When marginal revenue (MR) and marginal cost (MC), as seen in the graph above, are equal, MR=MC, the level of output that maximises profit is reached. For a monopoly, the demand curve will be the average revenue curve (AR=D), as there is only one company that has complete market power.
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