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Monopoly Suppliers

25 April, 2016 - 09:12

A firm with monopoly power over a particular factor can be expected to behave like any other monopoly. It will choose its output where the marginal revenue and marginal cost curves intersect and charge a price taken from its demand curve.

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Figure 14.7 Monopoly Factor Supply

A monopoly supplier of a factor of production acts just as any other monopoly firm. Here, the monopoly faces the demand curve D and the marginal revenue curve MR. Given the marginal cost curve MC, it maximizes profit by supplying Qm and charging a price Pm.

A monopoly supplier of a factor faces a demand curve that represents the MRP of the factor. This situation is illustrated in Figure 14.7. The firm will charge a price Pm equal to the MRP of the factor and sell Qm units of the factor.