An important aspect of monopoly is shown by the outcome in Figure
2. The profit-maximizing level of output is determined where
(Rule 2); and since MR is less than price for a monopolist, it
must follow that price exceeds marginal cost.
For a profit-maximizing monopolist, price is greater than marginal cost.We come back to this important point shortly when we address the
efficiency of monopoly and compare the monopoly outcome to that in a
perfectly competitive market.
No Supply Curve for a Monopolist
In describing the monopolist’s profit-maximizing behaviour, we did not
introduce the concept of a supply curve, as we did in the discussion of
perfect competition. In perfect competition, each firm is a price taker and
its supply curve is given by its own MC curve. An increase in the market
price leads to an increase in quantity supplied as each firm moves along
its MC curve. There is no such relationship in monopoly.
A monopolist does not have a supply curve because it is not a price taker; it chooses its profit-
maximizing price–quantity combination from among the possible combinations on the market
demand curve.Like a perfectly competitive firm, a monopolist has a marginal cost curve.
But unlike a competitive firm, a monopolist does not face a given market
price. The monopolist chooses the price–quantity combination on the
market demand curve that maximizes its profits. Following Rule 2, the
MR=MC