A profit maximizing monopolist will always charge a price higher and produce a quantity lower than the allocatively efficient levels.

    Profit maximization requires the firm to produce the quantity where MR = MC. The appropriate price is found on the demand curve and must be greater than MC. On the graph to the right P_AE is the allocatively efficient price and Q_AE is the allocatively efficient quantity, while P_M and Q_M are the profit maximizing price and quantity, respectively. The monopoly price is above the allocatively efficient price and the quantity is below the allocatively efficient quantity.

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