Can the profit-maximizing monopolist produce an output that lies in the inelastic portion of the linear demand curve it faces? Why or why not?
Answer
Because we known that at such a condition, the marginal revenue would be less than 0, and we also know that marginal revenue is amount of revenue gained by selling an extra unit, nobody is going to sell an extra unit if the marginal revenue is negative
Explanation
This has to do with MR and MC:
MC = MR (for profit maximising monopoly)
MC > 0
MR < 0 if you are on the inelatic portion of the Demand Curve (since MR = P(1 – 1/e) where e = (absolute value) elasticity
This means that a profit-maximising monopoly cannot produce there.
This is because we have seen that at this level, the MR is less than 0, and we also know that marginal revenue is amount of revenue gained by selling an extra unit, nobody is going to sell an extra unit if the marginal revenue is negative
