Facing the Demand

Why is there a seeming difference between marginal income curves monopolies face and those of competitive companies? A monopoly is able to freely choose the price they want and can reduce the number of units or can include a very relatively low price in a flooding market. On the other hand, each company in a competitive industry is such a small part of the same thing that the level they choose to produce makes such a small difference in the total product that it does not affect the price. 

The monopoly capacity to control the price by altering their production level means they need to consider their product level. Obviously since, given the fact that their objective is to maximize the benefits, they have to determine the product level with which they intend to achieve that objective.

It turns out that the product for maximizing the benefits of a monopoly are defined by the same condition then that of a competitive company; producing at the level in which the marginal income curve crosses the marginal cost curve.

In this way the first step to finding the production level of a monopoly is to determine the marginal income curve. When this is done, you will be able to see where the curve crosses with the marginal cost curve of the monopoly and determine how much should be produced.

Deriving the Marginal Yield Starting From the Demand Curve
The marginal income curve of a monopoly has a precise relation with the demand curve for its product. The marginal income of each successive product unit is less then the marginal income of the unit before because the demand curves have a negative pendant. If the demand curve is a straight line, the pending of the marginal income is two times more slopped then the pendant of the demand curve, which means that the marginal income quickly reduces as the product increases.

Beginner Money Investing Monopolies - Just How Bad Can It Get Without Competition? The Problems That Monopolies Cause Facing the Demand Choosing a Product Level to Maximize Benefits