Why don't monopolies charge the highest possible price??

Question

If you're a monopoly, why wouldn't you charge the highest possible price that the demand would pay?

Answer 1

Perchance they want to stay in business.

Answer 2

Supply and demand, as the parrot says.

the way your question is worded, the answer is that yes, they do charge the highest possible price that demand will pay. That does not necessarily mean that the goods are prohibitively high, however.

as a businessperson, you have two internal variables to consider when settling price: how many you can produce (your "supply",) and how many of your product people are willing to buy (your "demand".)

What you as the businessperson would want to do, is to find the equilibrium, which is the point where you sell every single product that you manufacture in a period for the maximum price. Going over equilibrium (that is, setting prices too high) results in a surplus: you have leftover products sitting unused in your factory. Going under equilibrium results in a shortage (that is, there are more people who want it then there are products to go around, which translates to lost opportunity to increase profits for your company.)

This matters to a monopolist because any customer dissatisfaction draws the potential for upstart competition to start stealing market shares away from the company.

The rules do not apply when the monopoly is coercive. That is, when other businesses are forbidden by law to compete. In the event of a state-sanctioned monopoly, there is no incentive to obey market conditions, which historically translates to stagnation.

Answer 3

I true monopoly can do that. But they are still limited by demand. At a certain price the profits could diminish because the demand would drop more than the gain of charging a price. Of course monopolys are illegal in the united states, and if there is a monopoly in the US then the government would step in to regulate and break up the monopoly.

Answer 4

Monopolies would love to charge their highest price of when their MR=P, but because of government intervention, they can only set their price to be when MC=P.

They are forced to charge the market price because it removes the DWL - dead weight loss to society, so that the market and the public can gain more goods. If monopolies charge at their firm price, they are not producing that many goods and thus, the market and the public are losers. Hence government steps in and sets a price ceiling that monopolies cannot go beyond.

Answer 5

Monopolies are organizations the position one individual or a collection of human beings own all or maximum of a particular product or land. nicely, the be conscious "continually" is a confusing be conscious to address because virtually not at all is a few thing continually. i do not comprehend what words your instructor is on and how a recommendations she is taking "continually". notwithstanding, i'd ought to say genuine, because monopolies frequently administration all of one product and hence they haven't any competition and do not favor to problem about competeting with yet another employer about who sells the most. they haven't any competition and would hence grant a cost as intense or as low as they pick without irritating about dropping employer.The monopolies comprehend that the individuals count on their product and would ought to purchase it. So, in the journey that they make the cost low (low sufficient so as that the monopolies may have an earnings), they're only being awesome to the individuals because they're getting a low cost. in the journey that they make the cost truly intense, some human beings gained't deal with to pay for, yet they're going to favor it because no one else sells that express product and could both ought to save up for it or locate a thanks to purchase that merchandise. So now, with the costs very intense, the monopolies are nevertheless getting their favourite earnings because human beings favor that product and characteristic to purchase it from them because there is nowhere else to purchase it from, except the monopolies have become even extra money because they're overcharging. they're only getting more suitable than sufficient money by an unfair procedure (it really is unfair for the individuals who've a really low salary because it really is particularly confusing for them to locate the money for it and they could't get it everywhere else). there is not any factor for them to price a low cost because then they get a lot less money (nevertheless sufficient, yet below they'd be getting) and are in simple terms extra awesome to the individuals by accepting that the individuals have a low salary and could no longer favor to warfare that confusing with the intention to purchase it. notwithstanding, monopolies frequently did not imagine like that- it became frequently about the money. So i imagine genuine.