The supply curve of a pure monopolist:
a. is that portion of its marginal cost curve which lies above average variable cost.
b. is the same as that of a purely competitive industry.
c. is its average variable cost curve.
d. does not exist because prices are not “given” to a monopolist.
The correct answer and explanation is :
The correct answer is:
d. does not exist because prices are not “given” to a monopolist.
Explanation:
In economics, the concept of a supply curve typically refers to the relationship between the price of a good or service and the quantity supplied by producers, holding all other factors constant. For firms in a perfectly competitive market, the supply curve can be derived from the marginal cost (MC) curve above the average variable cost (AVC) curve. However, this idea does not directly apply to a monopolist.
A monopolist is a firm that is the only producer of a particular good or service in the market, meaning it faces the market demand curve directly and is a price maker. Unlike firms in perfect competition, monopolists do not take the market price as given; instead, they determine the price by choosing the quantity they wish to produce, and then the market price is set based on the demand curve.
Why the monopolist does not have a supply curve:
- Price-Setting Behavior: The key difference between a monopolist and a perfectly competitive firm is that the monopolist has the power to influence the price by choosing the quantity to produce. This contrasts with competitive firms, which are price takers. A monopolist maximizes profit by selecting a quantity where marginal cost (MC) equals marginal revenue (MR), and the price is determined from the demand curve. Therefore, the monopolist’s price is not determined by the cost of production alone, but rather by the interplay of market demand and the monopolist’s pricing strategy.
- No Supply Curve: In a competitive market, firms produce where the price equals marginal cost (P = MC), and thus we can derive the supply curve from the marginal cost curve above average variable cost. However, a monopolist’s production level is not directly tied to price in this way. Since the monopolist can adjust both price and quantity, there is no clear supply curve that shows the relationship between price and quantity supplied as in competitive markets.
In summary, a monopolist’s pricing and output decisions depend on demand and cost considerations, not on a fixed supply curve. Hence, the monopolist does not have a well-defined supply curve.