Monopoly

Market Structure: Monopoly;

THE FOLLOWING NOTES ARE THE BASIC CONCEPTS IN THE MAINSTREAM (CAPITALISTIC, NEO-CLASSICAL) ECONOMICS.

Conditions

  • 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.

Features

  • 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).

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