A Level Economics AQA Practice Exam 2025 - Free Economics Practice Questions and Study Guide

Monopolies typically operate at the level of production where marginal revenue equals marginal cost. This principle is derived from profit-maximization behavior in economics. A monopoly, as a single seller in the market, controls the price and quantity of the good it produces.

In order to maximize profits, the monopolist will produce output up to the point where the additional revenue gained from selling one more unit (marginal revenue) is equal to the additional cost of producing that unit (marginal cost). If the marginal revenue exceeds marginal cost, the monopolist can increase profit by increasing production; conversely, if marginal cost exceeds marginal revenue, reducing production would increase profit. Thus, the equilibrium point where these two curves intersect indicates the output level that maximizes the monopolist's profit.

This behavior illustrates why monopolies do not typically produce at levels that would minimize average costs or ensure price equals marginal cost, as those conditions are more associated with perfect competition rather than monopolistic markets. Monopolies also do not generally aim for full market saturation; instead, they may restrict output to elevate prices, leading to a deadweight loss in the market.