In a monopolistic market, the profit-maximizing output level occurs where marginal cost equals marginal revenue, and this level is always greater than the socially optimal output level.

In a monopolistic market, a single company controls the entire supply of a good or service, which gives it the power to set prices. The profit-maximizing output level is found when the cost of producing one more unit of a product, known as marginal cost, is equal to the additional revenue generated from selling that unit, called marginal revenue. However, this output level is often higher than what is considered socially optimal, where the price reflects the true cost to society, including all benefits and costs. For example, if a monopolist produces 100 units of a product, they might charge a high price that limits access, while the socially optimal level—where everyone can benefit—might be 150 units at a lower price. This difference means that while the monopolist maximizes their profit, society does not get the full benefits of the product.