The Supply Curve In a Monopolistic Environment

In a monopolistic environment, it is vital to note that the supply curve is not present, which otherwise highlights the output generated by a firm depending on the varying cost of a given commodity. The Supply curve about a given commodity shows proof of an exclusive price-output relationship, meaning, at certain prices specific amount of outputs will be produced by the company and offered to the market for sale. Thus looking into, supply curve and all it entails, it is important to note that the enterprise has little authority when it comes to pricing of the commodity (Hubbard & O’Brien, 2015). Consequently, for an enterprise to compete effectively, the marginal revenue (MR) must equal the commodity price as a result of a bigger profit ratio, marginal cost is equated to price. Furthermore, due to variation in demand the price changes; the different price value which is higher is now equated to the marginal cost at a greater output level. In such a way in an ideal competition, the supply curve of the enterprise is replaced by the marginal cost curve. 

In line with Baumol a professor of economics, “The supply curve is strictly speaking, a concept which is usually relevant only for the case of pure or perfect competition“…. This makes sense when you look in its interpretation since the whole concept behind supply curve gives an understanding behind the form factor, “How much will firm a supply if it encounters a price which is at P dollars. But such a question is most relevant to the behavior of firms that deal with price over whose determination they exercise no influ­ence (Hubbard & OBrien, 2015).” In the view of having monopoly trader being the exclusive maker of the product, they subsequently determine the price of the commodity on their own since they have full authority (Hubbard & O’Brien, 2015). Also, the marginal revenue (MR) curve comes below the demand curve, which slopes downwards. In respect to acquiring greater profits, a monopolist will not relate any amount concerning the marginal cost; rather, there should be a comparison between marginal prices with marginal returns. Therefore, variation in demand bringing price changes will not draw out a rare price-output series formation as in purely competitive enterprise. 

The choice on the amount to supply in a monopoly is hard to isolate from a demand curve it encounters since the overall marginal revenue curve is dictated by demand curve shape, therefore in turn influence the gains made by a monopolist in respect to increased quantity. However, when it comes to profit maximization, both monopoly firms and competitive ones are the same. In contrast, the difference comes in where the marginal return from a competitive enterprise is equal to its price (P) compared to a monopoly firm whereby its marginal revenue (MR) is lesser about its marginal cost (MC). Variation in demand under monopoly conditions results in price changes whereas the output is constant in reverse output change causes no price shift or else both variables may change under a monopoly system (Hubbard & O’Brien, 2015). Thus the idea of supply curve becomes insignificant and cannot be applied in circumstances of monopoly. Therefore, the exclusive relationship of price-quantity is absent, considering quantity produced by an enterprise concerning a monopoly market is greatly decided on the cost of the items, not the marginal returns, provided there is the availability of a marginal price curve. 

Various market structures represent the monopolistic type of businesses. For instance, coffee has a vast number of vendors globally, locally in coffee houses, and many more in the streets. A good example is Starbucks located in the USA and commanding a huge market share with outlets in over 65 countries; likewise, Costa coffee, which commands the European market, is also ranked very high. Similarly, the two global coffee chains sell coffee, the distinction being the quality of coffee, prices, and the service offered to customers. For a monopolist firm, there is no price competition, and it is evident when we compare a street vendor selling coffee at $ 0.6 per cup similarly having the same cup of coffee being sold at $ 6 at Starbucks. In view of the two examples, the street vendor is in an inferior position in terms of competing with Starbucks for the pricing reason being, Starbucks has an advantage looking into their coffee hoses infrastructures, quality of their coffee drinks, exceptional hospitality. 

In conclusion, supply curve gives information on the quantity a firm expects to offer at a given price, but in a monopoly, firm quantity is not equitable to the pricing of any commodity, therefore under monopoly, the supply curve relating a rare output with the price is absent. Also, variation in demand brings about change in price, considering the output generated and supplied is constant, or changes in output may be experienced with constant price figures. However, normally, demand shifts usually account for both output and price changes furthermore the experienced price and output fluctuations due to variation in demand are dependent on cost flexibility of demand and marginal price curve. Most crucial elements worth considering when comparing an ideal competitive firm, operations involving the marginal price curve of a monopoly cannot be taken to represent the supply curve of a given company. Also, there exists no supply curve in a monopoly portraying a rare price-output relationship. 

Reference 

Hubbard, R. G., & OBrien, A. P. (2015). Essentials of economics. Boston: Pearson.