Final answer:
A monopolist's marginal revenue is always less than the price because increasing output lowers the price on all units sold, which lowers marginal revenue. Profits are maximized where marginal revenue equals marginal costs.
Step-by-step explanation:
A monopolist's marginal revenue is always less than the price because, unlike a price taker, the monopolist influences the market price.
When a monopolist decides to increase output, it must lower the price not only on the additional units but also on all previously sold units, resulting in a decrease in marginal revenue with each additional unit sold.
This phenomenon occurs because the marginal revenue curve lies beneath the demand curve.
As production increases, total revenue increases until it reaches a point where any further increase in quantity will push the price down too far, causing total revenue to decrease.
If the firm produces where marginal costs exceed marginal revenue, it will incur losses on each additional unit produced.
Thus, the firm will maximize profits where marginal revenue equals marginal costs (MR=MC). This balance determines the profit-maximizing output and price for a monopolist.