Monopoly Profit Maximization

The rule for monopoly profit maximization will come as no surprise. It is

MR=MC

That is, the rule says that the monopoly should increase output up to the level where the marginal cost curve intersects the marginal revenue curve, in order to maximize its profits. The price charged is the corresponding price on the demand curve. Notice that this is a two-stage analysis:

at the first stage, the marginal cost, shown in red, and the marginal revenue, shown in light green determine the output. Profit maximizing output is the output at which they intersect, shown by the gold line.
at the second stage, the output and the demand curve determine the price. Trace up the vertical gold line to the dark green demand curve, and that's the profit-maximizing price.

The diagram is a little more complex. Here it is:

Figure 3

The output that corresponds to maximum profits is Q', which is 10,500 widgets, and the monopoly price is $70 per widget.