Final answer:
Monopolists maximize profits by selecting a specific quantity to produce, which determines the market price due to the downward-sloping demand curve they face. Their decision-making considers the costs and finds the quantity where marginal cost equals marginal revenue, then sets the price consumers will pay for that quantity.
Step-by-step explanation:
Monopolists seek to maximize profit by choosing a quantity and price, just like firms in perfectly competitive markets. Unlike perfectly competitive firms, which face a horizontal or flat demand curve, monopolists face a downward-sloping market demand curve. This means that if a monopolist chooses to produce and sell a higher quantity, the price per unit will be lower, and if they choose to produce and sell a lower quantity, the price per unit will be higher. The monopolist's decision-making process involves finding the profit-maximizing quantity of output where marginal cost equals marginal revenue and then setting the highest price consumers are willing to pay for that quantity.
This process differs from that of a perfectly competitive firm since a perfectly competitive firm can only decide on the quantity to produce and not the price. Profit for a monopolist, as with any firm, equals total revenues minus total costs, incorporating total cost, fixed cost, variable cost, marginal cost, average cost, and average variable cost in their analysis. Due to the lack of competition, the monopolist's situation is distinct as they control the market price by adjusting the quantity supplied.