Profit Maximization in a Monopoly

1. Profit maximization scenario

A monopoly like the large telecommunications company is a business that has no competition in the market. Profit maximization for a monopoly is mainly a revenue maximization scenario (Samuelson, 2001). As shown in the figure below, the profit maximizing point is the point where marginal revenue is equal to the marginal cost.

Profit Maximization Diagram

A monopolist maintains its output at the upper price limits where the price maximizing equilibrium occurs at MR=MC (Samuelson, 2001). This upper range of prices leads the monopolist to set prices at the point where demand is elastic. This also leads to an abnormal profit which represents profit that is higher than the normal profit.

2. Other strategic factors that can be considered before adopting the profit maximization strategy

One of the factors that can be considered is the perception of the consumer about the price and value of the product. Consumers may choose to buy the product based on the value they receive from using the product (Samuelson, 2001). Consumers are not willing to pay high prices if they do not benefit from the product. A monopoly can also consider other marketing objectives of the organisation apart from profit maximization. Such objectives may include survival due to changing consumer wants, or setting barriers of entry.

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