How a Monopolist Maximizes Profit

As we’ve suggested, once Cecil Rhodes consolidated the competing diamond producers of South Africa into a single company, the industry’s behavior changed: the quantity supplied fell and the market price rose. In this section, we will learn how a monopolist increases its profit by reducing output. And we will see the crucial role that market demand plays in leading a monopolist to behave differently from a perfectly competitive industry. (Remember that profit here is economic profit, not accounting profit.)