... however, chooses its profit-maximizing quantity by equating its marginal revenue (MR) with MC1 - QM - and then charges the price according to the demand its faces - PM.6 Thus, usually, QM Ppc. However, there are at least two reasons why the monopolist produces a higher output at a lower price than a PC firm. 1. The monopolist may benefit from economies of scale so that its marginal cost curve is significantly lower than the PC firm. For example, if its marginal cost curve is MC2 (see graph), then its profit-maximizing quantity is QM', which is higher than Qpc and its price is PM', which is lower than Ppc.7 2. The monopolist, enjoying its profit, may have the resources to innovate through investment in research and development so that it can lower its marginal cost, for example also to MC2, thus again having a lower price and a ...

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