Ques.3. The supply curve of the monopolist is indeterminate. Discuss.

Market control means that monopoly does not have a supply relation between the quantity of output produced and the price. In contrast, the short-run supply curve a perfectly competitive is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. However, because monopoly does not set price equal to marginal revenue, it does NOT equate marginal cost and price. For this reason, a monopoly firm does not respond to price changes by moving along its marginal cost curve. A monopoly does not necessarily supply larger quantities at higher prices or smaller quantities at lower prices.

Monopoly maximizes profit by producing the quantity of output that equates marginal revenue and marginal cost. In that price (and average revenue) is greater than marginal revenue for a monopoly, price is also greater than marginal cost. Monopoly does not produce output by moving up and down along its marginal cost curve. The marginal cost curve is thus not the supply curve for monopoly.

As a price maker that controls the market, monopoly reacts to demand conditions, especially the price elasticity of demand, when setting the price and corresponding quantity produced. While it is not out of the question that monopoly offers a larger quantity for sale at a higher price, it is also conceivable that it offers a smaller quantity at a higher price or a larger quantity at a lower price.