Monopoly

Monopoly

A market structure where a single firm controls the entire market supply of a product or service.

P > MC → DWL

Indicates that when price exceeds marginal cost, there is a deadweight loss in a monopoly.

Conditions for Economic Profit: P > ATC

Indicates that when price is greater than average total cost, the firm earns a positive economic profit.

P = ATC → zero economic profit

Indicates that when price equals average total cost, the firm breaks even.

TR (Total Revenue) peaks when MR = ___

0

Monopoly's pricing behavior

A monopoly will not produce where MR is negative, as this indicates falling total revenue and shrinking profit.

MR is negative when TR is falling

Indicates that if total revenue decreases with the sale of additional units, the marginal revenue becomes negative.

DWL caused by monopoly

Occurs because monopolies restrict output, charge higher prices, and prevent mutually beneficial trades.

Profit maximization condition for monopolies

A monopoly maximizes profit by producing where MR equals MC.