Econ 1 (MONOPOLY)

Lack of substitutes

There is only one(1)firm producing a good without close substitutes. This productisoftenunique.This means that the entirety of the goods sold in the market is produced by the firm.

Barriers to entry

There are significant barriers to entry setup by the monopolist. If new firms enter the industry, the monopolist will not have complete control of a firm on the supply.

Competition

There are no close competitors in the market for the product.

Price maker

The monopolist decides the price of the product, since it has market power. This makes the monopolist a price maker.

Profits

A monopolist can maintain supernormal profits even in the longrun.This is not possible in a perfectly competitive market

Stability of prices

In a monopoly market, the prices are stable. This is because there is only one(1) firm that sets the market price.

Economies of scale

Since there is a single seller in the market, it leads to economies of scale. Big scale production which lowers the cost per unit for the seller This benefit may be passed onto the consumer in terms of a lower price.

Research and development

Since the firm is making supernormal profits, the firm can invest that money into research and development. Customer is may be getting a better quality product at a reduced price.

Higher prices

The monopolist could set a very high price for the product, leading to exploitation of consumers as they have no option but to buy it from the seller.

Price discrimination

Monopolists can sometimes use price discrimination, where they charge different prices on the ame product for different consumers.

Inferior goods and services

The lack of competition may cause the monopoly firm to produce inferior goods and services because they know the goods will sell.

Natural monopoly

These monopolies exist because the firm can provide the commodity at a lower cost per unit than potential entrants. Electric companies are an example of a natural monopoly.

Legal monopoly

Exist due to government legislation and protection.Typically, legal monopolies are privately-owned companies that are granted a monopoly by the government. An example of a legal monopoly is a water service company. A local government grants a monopoly to eliminate unnecessary duplication of costs that leads to higher prices for the customers. Two(2) water service providers in the same area would mean that two(2) firms would lay down the water pipes, water meters, and so on There will be twice the cost and half the consumers for each water service provider. So, the government granted monopoly to only one (1)service provider per area.

Government monopoly 

Monopolists monopoly is a monopoly that's owned and operated by the government. the primary difference between government monopoly and legal monopoly is that the government monopoly is publicly owned while the legal monopoly is privately owned.

Patent Monopoly

Protection of an invention under patent laws results in a patent monopoly. The protection's purpose is to encourage research and development by ensuring a period of time over which the potential for monopoly profit exists. This protection is temporary; therefore, patent monopolies have a limited lifespan as a monopoly.

Resource monopoly

A single firm's virtual control of an entire resource's supply results in a resource monopoly.

Exclusive control over important inputs

Complete or large control over necessary inputs for production causes some companies to be the sole power in an industry. Competitors cannot form due to lack of inputs.

Economies of scale 

In a monopoly, an additional competitor would only make the costs of production higher. It would be wiser to have only one (1) firm producing the good.

Patents

A patent typically includes the exclusive benefits from all the market activities involving the invention to which it applies. Patents can be harmful or beneficial to the market, but without them, some inventions may not appear at all.

Network economics

In this situation, a business benefits because of the feedback from its buyers or users. Network economics comes from the network effect, wherein the value of a good or service increases as the number of users or buyers multiply. For example, Facebook is always evolving because of feedback from its users.

Government licenses 

Government or local authorities can give out licenses for firms in certain areas so they gain exclusive rights of operations. These licenses are for certain industries or types of businesses. For example, a financial institution should get a license from the Bangko Sentral ng Pilipinas (BSP), or they would not be allowed to operate

Average revenue (AR) 

This is the total revenue/quantity. This is also represented by the demand in the market. The monopolist's demand curve is the market demand curve

Marginal revenue (MR)

This is the revenue earned by selling one (1) more unit. In a monopoly, the firm can only sell more if it lowers its price. A monopolist can choose the level of output or price, but not both since it has a negatively sloped demand curve. The marginal revenue curve has double the slope of the average revenue curve.

Monopoly underproduction

Monopolies sell less output at higher prices than perfectly competitive markets. Monopoly underproduction refers to the tendency of monopoly firms to restrict output to increase prices and earn economic profits. Marginal social benefit is measured by the price that customers are willing to pay for an additional output. Under a monopoly, marginal cost is less than the price charged at the profit-maximizing output level.

Social loss

if monopolists do not use cost-effective production methods. The monopoly firm would also need to maintain the barriers to entry for the market rivals, which can be expensive.

Deadweight loss

Monopoly underproduction also results in deadweight loss, or an inefficient allocation of resources. This deadweight loss would also cause social welfare to decline because mutually beneficial trade activity would fall.