Question

The monopoly supply curve is the

1)same as the competitive market supply curve.
2)portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs.
3)result of market power and production costs.
4)none of the above

Answer 1

The monopoly supply curve is the result of market power and production costs, where the monopolist sets quantity where MR = MC and uses the demand curve to find the price, hence option 3 is correct.

Step-by-step explanation:

The monopoly supply curve is not the same as the competitive market supply curve. For a perfectly competitive firm, the marginal cost (MC) curve is identical to the firm's supply curve starting from the minimum point on the average variable cost (AVC) curve.

However, a monopolist does not have a supply curve in the same way a competitive firm does because a monopoly sets the quantity where marginal revenue (MR) equals marginal cost (MC), and then uses the demand curve to determine the price.

This is the result of market power and production costs. Therefore, if we translate the student's options:

1. Same as the competitive market supply curve - Incorrect.
2. Portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs - Incorrect, this describes a perfectly competitive firm's supply curve.
3. Result of market power and production costs - Correct, the monopolist's decision is based on MR = MC, which reflects both market power and production costs.
4. None of the above - Incorrect.

So, the correct answer is 3) a result of market power and production costs. When marginal costs increase, a firm's individual supply curve shifts upward, meaning for any given price, the firm is willing to supply less output than before because the increased cost makes it less profitable to produce as much as before.