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## Output and Price Determination in Pure monopoly

21 Jul

So at what price-quantity combination will pure monopolists choose to operate?
MC=MR Rule
The monopolist seeking to maximize its profits will have the same rationale as a firm in a competitive industry. It will produce one more unit of output only if it adds more to total revenue than to total cost. The firm will increase its output till the point where MR=MC.
One more way to find profit-maximizing output is by comparing total revenue and total cost at each quantity of production. The quantity for which this difference has the greatest possible value is the one which offers maximum profit.
No Monopoly Supply Curve
In pure competitive market MR=P (price) and supply curve of a pure competitive firm is determined by applying P=MR=minimum ATC profit-maximizing rule, so in a pure market the seller will maximize profit by supplying the amount of goods for which MC= P. Thus, in a pure competitive market the amount of goods produced depends on the price.
We may say that pure monopolist’s marginal-cost curve will be also its supply curve, but it is wrong. The pure monopolist has no supply curve, because there is no a unique relation between quantity supplied and price set by a monopolist. Like pure competitor firm, monopolist equalizes MR with MC to determine the quantity output, but for monopolists marginal revenue is less than price. Also, because monopolist doesn’t equalize marginal cost to price, it may have different prices for the same amount of output.