The main reason as to why a monopoly might decide to increase production and lower retail prices are to gain more profit in the long run. It sounds confusing in some respects, but selling more products for lower prices generally means more sales due to increased consumer demand. Providing that a considerable number of additional sales are made, the above described approach allows the monopoly to generate more income in the long run than they would be able to otherwise.
To make it easier to visualise, if you were to look at monopoly demand curve graph, you would be able to see that setting high prices generally reduces demand amongst consumers. Therefore, monopolies must consider the level at which they set the retail price of their product/s to maximise sales and profits, without lowering public interest in a particular item.
For example, the demand for a certain product priced at $20 may be in the region of 100 units, whereas the demand for the same product priced at $15 would be 250 units. In this case, it's plain to see that lowering prices would actually result in more revenue being generated, which explains why it isn't always in the best interests of a monopoly to put prices up as high as they possibly can.
Additionally, it's worth noting that monopolies have the power to set their own prices because they are the sole major operator in their specific market. As a result of this, they don't need to worry about competition with rival companies, but can instead set prices which the rest of their weaker market rivals must compete against. In some circumstances, monopolies may choose to increase production and lower prices to force other rivalling companies out of business very quickly, a strategy which reduces market competition.
To make it easier to visualise, if you were to look at monopoly demand curve graph, you would be able to see that setting high prices generally reduces demand amongst consumers. Therefore, monopolies must consider the level at which they set the retail price of their product/s to maximise sales and profits, without lowering public interest in a particular item.
For example, the demand for a certain product priced at $20 may be in the region of 100 units, whereas the demand for the same product priced at $15 would be 250 units. In this case, it's plain to see that lowering prices would actually result in more revenue being generated, which explains why it isn't always in the best interests of a monopoly to put prices up as high as they possibly can.
Additionally, it's worth noting that monopolies have the power to set their own prices because they are the sole major operator in their specific market. As a result of this, they don't need to worry about competition with rival companies, but can instead set prices which the rest of their weaker market rivals must compete against. In some circumstances, monopolies may choose to increase production and lower prices to force other rivalling companies out of business very quickly, a strategy which reduces market competition.
