explain why the marginal cost curve is equal to the supply curve for a monopoly
In economics, the marginal cost is the additional cost incurred by a firm to produce one more unit of output. The supply curve, on the other hand, represents the relationship between the quantity of goods that a firm is willing to supply and the corresponding market price. In a monopoly, where a single firm has control over the entire market, there is no distinction between the firm's supply curve and the market supply curve.
To understand why the marginal cost curve is equal to the supply curve for a monopoly, we need to consider the profit-maximizing behavior of the monopolistic firm. A monopolist aims to maximize its profits by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC).
The marginal cost curve represents the additional cost incurred for each additional unit produced. As the firm increases its output, the marginal cost tends to rise due to diminishing returns, economies of scale, or other production factors. This means that producing additional units becomes more expensive.
As a profit-maximizing monopolist, the firm will choose the level of output where marginal revenue equals marginal cost (MR = MC). This is because producing below this output level would mean that the additional revenue gained from selling one more unit (marginal revenue) is greater than the additional cost incurred (marginal cost), leading to an increase in profits. Conversely, producing above this output level would mean that the additional cost incurred is greater than the additional revenue gained, resulting in a decrease in profits.
Therefore, a monopolist will produce the quantity of output where marginal revenue equals marginal cost (MR = MC). Since the marginal cost curve shows the cost of producing each additional unit, this marginal cost curve is also the firm's supply curve.
In summary, the marginal cost curve is equal to the supply curve for a monopoly because the profit-maximizing monopolist chooses the level of output where marginal revenue equals marginal cost. This quantity of output, determined by the marginal cost curve, also represents the quantity that the firm is willing to supply at each corresponding market price, which is depicted by the supply curve.