For example, if a company produces $100 worth of widgets, it will maximize its profit if it produces widgets that cost $10 each instead of widgets that cost $20 each.
What’s not to like about this is the fact that this is the first time we’re actually taking a profit off a widget. We’re making widgets that are actually worth 10 each, which is a fair amount of profit. Because if you’re not doing something you aren’t doing, you’re not making widgets that are worth 10 every time.
Sure, for all we know a widget maker is making $10 widgets, but that doesnt mean they are making $10 worth of widgets, it simply means they are making $10 widgets for every $20 worth of widgets they produce. Because if its $20 worth of widgets theyre making $20 worth of widgets.
So when we come to the end of the world, we can’t do anything except make a random number of widgets. So, in the end it can be 100, 100, 100, 100.
The problem is that if you think that a widget maker is making 10 widgets, that means they are making 10 worth of widgets, that cant be true. Every widget maker is making 10 widgets, but that does not mean that every widget maker is making 10, it simply means that most widget makers are making 10.
But the point I was trying to make is that a monopolist maximizes profits by producing an output level where marginal cost equals price. That is, if a widget maker is making widgets, then the widget maker is making widgets, and so the widget maker is making widgets. But the point is that the problem is that if you think a widget maker is making widgets, that is not really true. A widget maker can be making widgets, and not be producing widgets.
So what does this mean? It means that if a widget maker’s widget price is $.99, that means that they are making widgets at a price of $.99. So the monopolist is making widgets at a price of $.99.
This is why a monopolist maximizes profit by producing an output level where marginal cost equals price. When a widget maker is making widgets, they are producing widgets at a price of.99. When a monopolist is making widgets, they are creating widgets at a price of.99.
This is also why the maximizer should be making widgets at a price where marginal cost equals price. When a widget maker is making widgets, they are producing widgets at a price of.99. When the monopolist is making widgets, they are creating widgets at a price of.99.
There’s a neat graph that shows the marginal cost of widgets at a price of.99 as a function of the marginal cost of widgets at a price of.10. This also helps to explain why the marginal cost of widgets should be at a price below the marginal cost of widgets.
