How should a monopoly choose its quantity of production to maximize profits? Explain why producing either less or more than the level of output at which marginal revenue equals marginal cost will reduce profits.

Since a monopolist does not fear competition, what prevents it from raising its price as high as it wishes to make higher profits?

A monopoly chooses the profit-maximizing quantity of production with marginal revenue of the firm equal to the marginal cost. If the firm produces less than this equality, the firm is underutilizing its production capacity. It has decreasing costs and if not maximized on increasing returns to scale, the profits are increasing, but not optimum. If the firm produces more than this equality, the firm is over-utilizing its production capacity. It has increased costs and if not minimized on decreasing returns to scale, the profits are decreasing, beyond the optimum.

A monopolist can raise the prices as higher as that one wants, but it will also invite corrective taxes and government regulations. Also, there is always the limit to maximize price until the level the consumers want to pay. A monopolist cannot exceed the price the consumers are able to pay. If the monopolist is charging excessive prices, then consumers will prefer not to demand the product and remain unsatisfied.