Certified Management Accountant 2026 – 400 Free Practice Questions to Pass the Exam

In a monopoly, a firm typically prices its product at a level that maximizes its marginal revenue. This pricing strategy is rooted in the understanding that a monopolist is the sole supplier of a particular product or service, allowing it to control supply and influence market prices.

To maximize profits, a monopolistic firm will set its output level where marginal cost equals marginal revenue. This means that the firm will produce additional units until the cost of producing one more unit is equal to the revenue generated from selling that unit. The price at which this quantity is sold is determined by the demand curve faced by the firm. Since it has market power, the monopolist can charge a higher price than would be possible in a competitive market.

This approach results in higher prices for consumers compared to perfectly competitive markets, where firms are price takers and cannot influence market prices. Ultimately, the monopolist's goal is to maximize profit, which is best achieved by carefully calculating the marginal revenue associated with varying levels of output and setting a price accordingly.