We may now re-examine the statement that there is no unique supply curve for the monopolist derived from his MC. The crucial condition for the maximization of the monopolist’s profit is the equality of his MC and the MR, provided that the MC cuts the MR from below. The monopolist cannot decide independently both the quantity and the price at which he wants to sell it. The monopolist will either set his price and sell the amount that the market will take at it, or he will produce the output defined by the intersection of MC and MR, which will be sold at the corresponding price, P. However, given the downward-sloping demand curve, the two decisions are interdependent. The monopolist is faced by two decisions: setting his price and his output. In pure competition the firm is a price-taker, so that its only decision is output determination. Note that the price is higher than the MR. The monopolist realizes excess profits equal to the shaded area AP M CB. Thus both conditions for equilibrium are fulfilled. In figure 6.2 the equilibrium of the monopolist is defined by point ɛ, at which the MC intersects the MR curve from below. Secondly, the slope of MC is greater than the slope of the MR at the point of intersection.
The monopolist maximizes his short-run profits if the following two conditions are fulfilled Firstly, the MC is equal to the MR.
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