A monopolist can choose the level of output or the price, not both since it has a negatively sloped demand curve.Average RevenueĪverage Revenue is Total Revenue/Quantity. Marginal revenue is the revenue earned by selling one more unit. Revenue Curves for a Monopoly Total Revenue The lack of competition may cause the monopoly firm to produce inferior goods and services because they know the goods will sell. Monopolists can sometimes use price discrimination, where they charge different prices on the same product for different consumers. The monopolist could set a very high price for the product leading to the exploitation of consumers as they have no option but to buy it from the seller due to the lack of competition in the market.

Customers may get better quality products at reduced prices leading to enhanced consumer surplus and satisfaction. Since the monopolist is making abnormal or supernormal profits, the firm can invest that money into research and development. The seller may pass this benefit down to the consumer in terms of a lower price.

Since there is a single seller in the market, it leads to economies of scale because of large-scale production which lowers the cost per unit for the seller. In other types of market structures prices are not stable and tend to be elastic as a result of the competition. This is because there is only one firm involved in the market that sets the prices since there is no competing product. In a monopoly market structure, the prices are pretty stable. If abnormal profits are available in the long run, other firms will enter the competition with the result abnormal profits will be eliminated. This is not possible under perfect competition. A monopolist can be a loss-making or revenue-maximizing too. While a monopolist can maintain supernormal profits in the long run, it doesn’t necessarily make profits. The monopolist decides the price of the product since it has the market power. There are no close competitors in the market for that product. These barriers imply that under a monopoly there is no difference between a firm and an industry. If new firms enter the industry, the monopolist will not have complete control of a firm on the supply. There are significant barriers to entry set up by the monopolist. Ex: When Apple started producing the iPad, it arguably had a monopoly over the tablet market. One firm producing a good without close substitutes. The following are key features that are typically found in a monopoly market structure: 1. Similar Posts: Characteristics of a Monopoly Market Structure

Competition market vs monopoly examples