The typical business man will deny that his firm “restricts” output, as our theory of monopoly has suggested. He will argue, on the contrary, that his firm tries to sell as much as possible at the price which it has announced. (Subject of course to any market sharing agreements to which it may be a party.) This is quite true; even a monopolistic firm, in practice, vigorously attempts to expand its sales, once it has set its price.
But how does the monopolist choose his selling price? If he wishes to achieve the maximum profit possible, he will proceed in something like the following fashion. He will estimate the demand schedule for his product, that is, the quantity that cold be sold at each possible price. Multiplying each quantity by the corresponding price, he will establish what total sales receipts could be expected at each possible price. He will then estimate what the cost would be of producing each quantity. Finally, he will compare expected total receipts with expected total costs and select the price which promises the biggest margin of receipts over cost.
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