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Summary: AQA A-Level Economics - 4.1.5.6 Monopoly and monopoly power £6.99
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Summary: AQA A-Level Economics - 4.1.5.6 Monopoly and monopoly power
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A quick summary of 4.1.5.6 Monopoly and monopoly power of the AQA A Level Economics specification using the CGP guide, various websites, and class notes. • The formal diagrammatic analysis of the monopoly model. • That monopoly power is influenced by factors such as barriers to entry, the n...

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  • Chapters covering market structures
  • July 29, 2022
  • 5
  • 2021/2022
  • Summary

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4.1.5.6 Monopoly and monopoly power

A monopoly is when there is only one firm in the market. In 1985, Microsoft could have been
considered a monopoly because it was the only operating system that could be used for computers -
closest example of a pure monopoly (100% market
share) but this is very rare in real life.

A legal monopoly is one where a firm has over 25%
market share like Tesco which controls 29% of the
supermarket industry.

3 simplifying assumptions:

• Only one firm in the market

• They want to maximize profit

• There are high barriers to entry - patents



A monopolist will seek to maximise profits by setting
output where MR = MC.

This will be at output Qm and Price Pm.

Compared to a competitive market, the monopolist increases price and reduces output.

Red area = Supernormal Profit (AR-AC) * Q

Blue area = Deadweight welfare loss (combined loss of producer and consumer surplus) compared to
a competitive market.



Are monopolies efficient?

• Productively inefficient - The diagram shows that MC isn’t equal to AC at the long run
equilibrium position for a monopoly (i.e. the firm isn’t operating at the lowest point on
the AC curve). This means that a monopoly isn’t productively efficient.

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