Mostly summarized from Gregory Mankiw’s
Principles of Economics, 5th
Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter
15 of 36 Monopoly
Section
14 of 34
…
Figure 5 here
…
A monopoly firm does not have a supply
curve.
We have analyzed
the price in a monopoly market using the market demand curve and the firm's cost curves.
A supply curve
tells us the quantity firms will supply at any given price.
This is true
when analyzing competitive firms which are price takers and must accept the
market price.
But a monopoly
firm is a price maker not a price taker, it can decide what price to charge.
…
We cannot ask
what quantity a monopoly firm would produce a certain price because the
monopoly sets the
quantity supplied and price.
This price and
quantity point is where profit is maximized.
In Figure 5 this is at monopoly price and QMAX.
The shape and slope
of the monopolist’s demand curve determines the shape and slope of the marginal
revenue curve.
This in turn
determines the monopolist's profit maximizing quantity and price.
… …
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