Final answer:
A monopolist decides on the price to charge for its product by identifying the profit-maximizing quantity and then determining the highest price consumers are willing to pay on the perceived demand curve. This price will maximize profits at the identified quantity. Changes in demand can lead to adjustments in both price and quantity supplied.
Step-by-step explanation:
When a monopolist determines its profit-maximizing quantity of output, it will then decide what price to charge based on the perceived demand curve. This decision-making process involves finding the point on the demand curve where the quantity produced will fetch the highest price that consumers are willing to pay. Essentially, the monopolist sets the price at the highest level where the quantity of goods supplied matches consumer demand, thus maximizing profits.
For example, if a monopolistic competitor like Authentic Chinese Pizza identifies that producing 40 pizzas maximizes their profits, they would then consult the demand curve to see what price consumers are willing to pay. If the demand curve indicates that customers are willing to pay $16 per pizza at the quantity of 40, then that is the price the monopolist will set. If external factors change, such as an increase in demand due to a successful advertising campaign, the monopolist may adjust the price and the quantity supplied to continue to maximize profits. In such scenarios, both the price charged and the quantity produced would likely increase to capitalize on the higher demand.