Market Structure: Monopoly;
THE FOLLOWING NOTES ARE THE BASIC CONCEPTS IN THE MAINSTREAM (CAPITALISTIC, NEO-CLASSICAL) ECONOMICS.
- Pure monopoly: a single company has 100% of market share
- More generally, a monopoly exists when a single company dominates a market.
- There is a barrier to entry.
- The company is a price maker.
- Marginal Revenue (MR) is a downward-sloping and the MR curve is below the demand curve.: In this condition, to sell more, the price has to be lowered for all units.
- The product output (Q) is determined when MR and MC meets, where the profit is maximized. (MR = MC)
- At this point, price is higher and the quantity is smaller than the market equilibrium.
- The company makes an abnormal profit because the price is higher than average cost (P > AC)
- The monopoly market is allocatively / productively inefficient.
- Consumers pay more
- The company does not use its resource fully because it does not operate at the most efficient output level
- Companies in monopoly might be not innovative (less R&D spending and less new products).