Supply Curve Under Monopoly

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# Supply Curve Under Monopoly

A supply curve various amounts of goods offered for sale in the market at different prices of that goods. For every price, there is a certain definite amount of the goods offered for sale. In other words, there is a unique relationship between the price and the quantity offered for sale.

Under perfect competition, a profit maximizing firm equates marginal cost with price (MC = MR = AR or P). thus, it is possible to know how much a firm will produce and supply at each price level. A firm’s marginal cost curve, over the range in which it lies above the minimum point of the average variable cost (AVC) is the supply curve of that firm in the short – run. The supply curve of the whole industry is derived by summing up the supply curves of all the firms comprising that industry.

In a monopoly, however, there is no unique supply curve, there is no definite relationship between the price and the amount offered for sale. A monopoly firm equates marginal cost with marginal revenue, which is lower than the price (MC = MR and MR < AR or P).hence, it is not possible to know how much a firm will produce at each level of price since price does not directly enter into output determination under monopoly. The amount of goods offeres for sale at a given price depends upon the nature, the shape or the elasticity of demand curve facing the monopolist. Thus, a monopolist may offer for sale the same amount of goods at two different prices depending upon the conditions of demand in the market. Or, for the same price, he may offer for sale two different amounts of the same commodity. Hence, there is no unique relationship between price and supply under a monopoly and thus we do not have a supply curve for a monopoly firm which has any such relationship with its marginal cost curve, as is the case with perfect competition. The case where a monopoly firm may offer for sale the same quantity of goods at two different prices depending upon the demand conditions.

Quantity OQ is offered for sale at price OP1 (associated with demand condition AR1) and the same quantity OQ is also offered for sale at price OP2 (associated with demand AR2).

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