Suppose the firm tried to charge a price higher than P*, for example P^H. If it did it would only sell Q^U, and we know that Q^U isn't profit maximizing.

    If the firm tries to lower the price below P*, say to P^L it will sell Q^O units, which we have already seen is not profit maximizing. So, while it is true that a monopolist can charge any price it wants, it can't do so if it wants to maximize profits. A movie theater can charge $400 for a box of popcorn (seems like almost that now doesn't it?) but they probably won't sell any at that price.

Click Here if you don't see topics listed to the left and below.