Monopoly Supply Curve and Law of Supply

Definition of Supply Curve

• Supply Curve: Relationship between price and quantity supplied.
• Positive Relationship: As price increases, quantity supplied generally increases.

Monopoly Supply Curve

• In a monopoly, the supply curve might behave differently.
• Exception: Sometimes, when the price increases, the quantity supplied might decrease.
• Law of Supply: Should hold at every point for every price and quantity combination, without exceptions.

Equilibrium in Monopolist Market

• AR and MR Curves: Represent the monopolist's Average Revenue (AR) and Marginal Revenue (MR).
• MC Curve: Marginal Cost curve.
• Equilibrium: Point where the quantity and price are determined.
  • Q*: Equilibrium quantity.
  • P*: Equilibrium price.

Shift in AR Curve

• Demand Curve Shift: When the demand curve (AR) shifts, MR curve also shifts.
• New Equilibrium: Shifted AR and MR curves lead to a new equilibrium.
  • P': New equilibrium price.
  • Q': New equilibrium quantity.
• Observation: Price increased but quantity supplied decreased, showing that the law of supply does not hold.

Factors Affecting Law of Supply in Monopoly

• Demand conditions.
• Amount of shift in demand curve.
• Elasticity of the demand curve.

Conclusion

• One instance of price increase leading to decreased quantity supplied is enough to show that the law of supply does not always hold.
• Therefore, there is no monopoly supply curve.