Figure 10-3 The Inefficiency of Monopoly
profit-maximizing level of output is determined where the MC and MR
curves intersect.
Firm and Industry
Because the monopolist is the only producer in an industry, there is no
need for a separate discussion about the firm and the industry, as is
necessary with perfect competition. The monopolist is the industry. Thus,
the short-run, profit-maximizing position of the firm, as shown in Figure
10-2 , is also the short-run equilibrium for the industry.
Competition and Monopoly Compared
The comparison of monopoly with perfect competition is important. For a
perfectly competitive industry, the equilibrium is determined by the
intersection of the industry demand and supply curves. Since the industry
supply curve is simply the sum of the individual firms’ marginal cost
curves, the equilibrium output in a perfectly competitive industry is such
that price equals marginal cost (such as price and quantity in Figure
10-3 ). As shown in Figures 10-2 and 10-3 , however, the monopolist
produces a lower level of output and, at that output level, price is greater
than marginal cost.
pc Qc