Monopoly is a market structure in which a single firm makes up the entire supply side of the market. Monopoly is the polar opposite of perfect competition. Monopoly is a market structure in which a single firm makes up the entire supply side of the market. Monopoly is the polar opposite of perfect competition. | Monopoly Chapter 12 Introduction Monopoly is a market structure in which a single firm makes up the entire supply side of the market. Monopoly is the polar opposite of perfect competition. Introduction Monopolies exist because of barriers to entry into a market that prevent entry by new firms. Barriers to entry include legal barriers such as a patent, and natural barriers such as the size of the market that can support only one firm. The Key Difference Between a Monopolist and a Perfect Competitor A competitive firm is too small to affect the price. It does not have to take into account the effect of its output decision on the price it receives. The Key Difference Between a Monopolist and a Perfect Competitor A competitive firm's marginal revenue is the market price. A monopolistic firm’s marginal revenue is not equal to its price – it takes into account that in order to sell more it has to decrease the price of its product. The Key Difference Between a Monopolist and a Perfect Competitor Monopolist as the only supplier faces the entire market demand curve. Therefore, monopoly demand is downward sloping, and to increase output the firm must decrease its price. A Model of Monopoly How much should a monopoly produce to maximize its profit? The monopolist employs a two-step profit maximizing process; it chooses quantity and price. The Monopolist’s Price and Output As in perfect competition, profit for the monopolist is maximized at a point where MC = MR. What is different for a monopolist – marginal revenue does not equal price; marginal revenue is below price. The Monopolist’s Price and Output If a monopolist deviates from the output level at which marginal cost equals marginal revenue, profits will fall. Profit Maximization for a Monopolist, Table 12-1, p 257 The Monopolist’s Price and Output Graphically The marginal revenue curve tells us the additional revenue the firm will get from an additional unit of output. The marginal cost curve is a graph of the change in | Monopoly Chapter 12 Introduction Monopoly is a market structure in which a single firm makes up the entire supply side of the market. Monopoly is the polar opposite of perfect competition. Introduction Monopolies exist because of barriers to entry into a market that prevent entry by new firms. Barriers to entry include legal barriers such as a patent, and natural barriers such as the size of the market that can support only one firm. The Key Difference Between a Monopolist and a Perfect Competitor A competitive firm is too small to affect the price. It does not have to take into account the effect of its output decision on the price it receives. The Key Difference Between a Monopolist and a Perfect Competitor A competitive firm's marginal revenue is the market price. A monopolistic firm’s marginal revenue is not equal to its price – it takes into account that in order to sell more it has to decrease the price of its product. The Key Difference Between a Monopolist and a Perfect .
