How does a monopoly decide on how much to produce, in order to maximize its profits?

In order to maximize its profit, a monopolist firm produces at the level where its marginal cost is equal to its marginal revenue that is MR = MC. This is because, in this situation, every additional unit of the cost incurred by the producer will be covered, an additional unit of revenue gained and the monopolist will be able to maximize its profits.

If MR > MC, it means that the firm cannot allocate resources and is not producing to its fullest. In this situation, a monopolist producer can increase its output in order to maximize its profits and use resources efficiently.