Final answer:
A monopolist will not produce where demand is inelastic because raising prices in this range would decrease total revenue by a larger amount than total costs, thereby reducing profits. Monopolies set prices where marginal revenue equals marginal cost, avoiding the inelastic portion of the demand curve. Marginal revenue for a monopolist is always less than the price due to the downward-sloping demand curve.
Step-by-step explanation:
A monopolist will never produce a quantity at which the demand curve is inelastic. This is because if demand is inelastic, that means consumers are not very responsive to price changes. Therefore, when a monopolist raises the price in an inelastic demand scenario, total revenue would increase, but only up to a certain point. Beyond this point, any further price increase would lead to a proportionally larger drop in quantity demanded, causing total revenue to fall. This is a less desirable outcome for the monopolist.
Monopolies are able to set the price for their product because they are the sole provider. Hence, they will seek the point where marginal revenue equals marginal cost to maximize profit. By doing so, they avoid the inelastic part of the demand curve where raising prices would lead to a drop in total revenue larger than the decrease in total costs, making it unprofitable. When considering how a monopolist chooses output and price, it is important to recognize that they face a downward-sloping demand curve. They have to reduce the price for all units to sell additional units. This causes marginal revenue to always lie below the demand curve, as each additional unit sold at a lower price brings in less additional revenue than the preceding unit.