# How Is Profit Maximized in a Monopolistic Market?

Monopolists are profit maximizers

## What Is a Monopolistic Market?

In a monopolistic market, there is only one firm that produces a product. There is absolute product differentiation because there is no substitute. One characteristic of a monopolist is that it is a profit maximizer.

Since there is no competition in a monopolistic market, a monopolist can control the price and the quantity demanded. The level of output that maximizes a monopoly's profit is calculated by equating its marginal cost to its marginal revenue.

### Key Takeaways

• A monopolistic market is where one firm produces one product.
• A key characteristic of a monopolist firm is that it's a profit maximizer.
• A monopolistic market has no competition, meaning the monopolist controls the price and quantity demanded.
• The level of output that maximizes a monopoly's profit is when the marginal cost equals the marginal revenue.
• In a competitive market, on the other hand, competitors will tend to drive down the marginal cost and erode profitability.

## Marginal Cost and Marginal Revenue

The marginal cost of production (MC) is the change in the total cost that arises when there is a change in the quantity produced. In calculus terms, if the total cost function is given, the marginal cost of a firm is calculated by taking the first derivative with respect to the quantity.

The marginal revenue is the change in the total revenue that arises when there is a change in the quantity produced. The total revenue is found by multiplying the price of one unit sold by the total quantity sold. For example, if the price of a good is $10 and a monopolist sells 100 units of a product per day, its total revenue is$1,000.