Monopoly
a market structure characterized by a single seller selling a
unique product in the market
in a monopoly market the seller faces no competition as he is
the sole seller of good with no close substitutes
firm is considered as monopoly if it has 725 of the market share
main aim profit maximise
Assumptions of a monopoly is a price maker
single seller make supernormal profit in long run
high barriers to entry
no close substitutes
have the ability to set the price
pricen
a H monopoly increases production by 10
Ipa Quantity supplied on the market increases by 109
Iii DIAR
s
Change in output will change the price
unlike firms in perfect competition market
a o awaits
Pricer
1 TotalRevenue
m
1 In elastic region when prices quantity demanded
A I hence total revenue 9
to
inelastic
domotenmtiabnded doesn't
In inelastic region when prices change
hence total revenue 4
Araanµy
i
MR
twice theslope of AR
Note A monopolist will never produce a quantity of goods on the inelastic
portion of demand curve
because they could sell less and get more revenue
monopoly produces at
MC MR Profit Maximisation
Pn but now price MR
MC
Pa Profit maximised at price Poc and quantity Qa
r i since at that point MEMR
p i
y
i
Qa Qc
i D
Q
Revenue is maximised at price Pc and quantityIQ
MR
since MR D
PED 1
Monopolies have high barriers to entry
Economies scale ex Aircraft manifacture
of
Branding ladvertising ex Apple products
, O Branly la Il j l ppl pot I
Legal barriers ex patents and copyrights
Control essential resources DeBeers diamonds
of
Power of monopoly
a monopoly might reduce the price and increase sales to use
it as a barrier to entry
the firm may profit maximise and enjoy abnormal profit but when a
new competitor tries to enter the industry the monopoly
may reduce the price and therefore reduce profit
the lower price may push the new entrant into making a loss
and out of the market
the monopoly can use economies of scale and cash reserves to
survive the the lower profit or loss
AC
efficient
Productively IAHocatively
monopolies efficient
are not productively
don't have to be due to no competition
may aim to increase growth not maximise profit
monopoly is never allocatively efficient
price MC since price MR
create market failure
does not produce enough output
Yes Yes No No
Maybe Yes No No
QaQ2
a market structure characterized by a single seller selling a
unique product in the market
in a monopoly market the seller faces no competition as he is
the sole seller of good with no close substitutes
firm is considered as monopoly if it has 725 of the market share
main aim profit maximise
Assumptions of a monopoly is a price maker
single seller make supernormal profit in long run
high barriers to entry
no close substitutes
have the ability to set the price
pricen
a H monopoly increases production by 10
Ipa Quantity supplied on the market increases by 109
Iii DIAR
s
Change in output will change the price
unlike firms in perfect competition market
a o awaits
Pricer
1 TotalRevenue
m
1 In elastic region when prices quantity demanded
A I hence total revenue 9
to
inelastic
domotenmtiabnded doesn't
In inelastic region when prices change
hence total revenue 4
Araanµy
i
MR
twice theslope of AR
Note A monopolist will never produce a quantity of goods on the inelastic
portion of demand curve
because they could sell less and get more revenue
monopoly produces at
MC MR Profit Maximisation
Pn but now price MR
MC
Pa Profit maximised at price Poc and quantity Qa
r i since at that point MEMR
p i
y
i
Qa Qc
i D
Q
Revenue is maximised at price Pc and quantityIQ
MR
since MR D
PED 1
Monopolies have high barriers to entry
Economies scale ex Aircraft manifacture
of
Branding ladvertising ex Apple products
, O Branly la Il j l ppl pot I
Legal barriers ex patents and copyrights
Control essential resources DeBeers diamonds
of
Power of monopoly
a monopoly might reduce the price and increase sales to use
it as a barrier to entry
the firm may profit maximise and enjoy abnormal profit but when a
new competitor tries to enter the industry the monopoly
may reduce the price and therefore reduce profit
the lower price may push the new entrant into making a loss
and out of the market
the monopoly can use economies of scale and cash reserves to
survive the the lower profit or loss
AC
efficient
Productively IAHocatively
monopolies efficient
are not productively
don't have to be due to no competition
may aim to increase growth not maximise profit
monopoly is never allocatively efficient
price MC since price MR
create market failure
does not produce enough output
Yes Yes No No
Maybe Yes No No
QaQ2
