Will Bury like any typical entrepreneur want to maximize profit and remain in business. With his technical skill, he invented a proprietary technology that convert printed text materials into digital format for reading or audio format for listening. Will Bury is considered a monopolist because he has the patent on his digital and audio technology. A monopolist is a firm who is the sole seller of its product and whose product has no substitute. Bury has an advantage of entry barrier so he has no competitors. However, because Will Bury lacks business acumen he cannot make profit from his business, he does even have an idea on marketing his product. He is struggling with some basic business decisions. This paper will provide answer to business decisions such as how to increase his revenue, how to determine his profit maximizing quantity, how to maximize profit with marginal cost and marginal revenue, pricing and, non-pricing strategy, and product differentiation and, creating barrier to entry.
Increasing revenue and maximizing quantity
A monopolist increases sales by charging a lower price. By increasing its output the revenue is increased. The demand curve of a monopolist is downward sloping therefore the quantity demanded increases as price decreases. Will Bury can increase his revenue by lowering its price on all unit sold. He must set his price in the elastic region of demand because at that point a decrease in price means an increase in demand, this eventually will increase total revenue. He must avoid reducing his price to an inelastic region of demand otherwise he will increase his sales and reduce his revenue. Like a pure competitive industry, the profit maximizing rule for a monopolist is to produce at an output where Marginal cost equals Marginal revenue (MC=MR). In the same vain, Will Bury determines the profit maximizing quantity through his control of output. He will choose a price-quantity combination where price reduction...
Please join StudyMode to read the full document