Price and Output Determination Under Monopoly

Price and output determination under monopoly, there is a single firm selling a commodity for which there is no close substitute. The monopolist firm has total controls are price and supply of the product. In the sense monopolist firm is price maker not a price taker; however the firm cannot make a decision on price and quantity of output to be supplied at the same time, if it set price, the market will determine the quantity to be sold and if it determined profits, maximization output. Then it has to sell the price that maximizes profit thus monopolist firm can control either price or output but not the both. The profit-maximizing the profit will determine the price and quantity of output at a point, where the following two conditions are satisfied.

• MR= MC
• MC cuts MR from below.

it can explain with the help of the following figure.

Here,

Price = OQTP
Cost = OQSR
Profit = Price- cost
= OQTP-OQSR
= STPR
Equilibrium point = E (MR=MC)
Equilibrium output = OQ.

The term monopoly was derived from Greek words, mono, and poly. Mono means single and poly means the seller. In the monopoly market, there is a single firm in the industry. Therefore the firm demand curves each and industry demand curve. The monopoly firm is to decide its selling price.