On the left is a diagram showing monopoly. The price charged is P3 - but why there? Answer: that's the output where MC = MR. But how does hte monopolist KNOW the MC? It's producing 000s of products - how will it KNOW the MC? And if it doesn't know the MC then....

Also... if the price is P3, where is supply? There does not seem to be a supply curve - so why is P3 equilibium?

1 comment:

  1. We should distinguish Marginal Cost in short-run and long-run. In the short run it's easier for monopolists to count marginal cost. Long-run marginal cost means the additional cost or the cost saving per unit of additional or reduced production, including the expenditure on additional capital goods or any saving from disposing of existing capital goods.