Explain why a monopolist will never produce a quantity at which the demand curve in inelastic.?

Question

Explain why a monopolist will never produce a quantity at which the demand curve in inelastic.?

Answer 1

I'm not sure if I would agree with that statement.  There are plenty of examples in countries like the North Korea where everything is monopolized by the government and where production of goods is insufficient to meet the demand.  Which means that monopolies are producing quantities where the demand curve is inelastic.

Answer 2

It has to do with marginal revenue.  A monopolist sets marginal revenue equal to marginal cost.  When demand is elastic, marginal revenue is positive, because the monopolist can lower the price and increase total revenue.  When demand is inelastic, marginal revenue is negative because when the monopolist lowers the price, total revenue will decrease.  Because marginal cost is always positive, the monopolist must always produce where marginal revenue is positive, which would be where the demand curve is elastic.

Answer 3

They'll produce the quantity that maximizes total profit.  If demand is inelastic that just means the quantity sold doesn't depend on demand because people will pay higher prices for it.  Like gasoline.  So the Saudis don't really want to increase oil production right now because it won't benefit them in any way to do so.  Even though we'd probably be more than happy to build them more wells and pipelines.  They'd rather ration their oil over time.