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The only seller of a good or service which does not have a close substitute.
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Narrow definition
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A firm is a monopoly if it can ignore the actions of all other firms.
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Broad definition
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Other firms in the market are not close enough substitutes
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A market structure in which barriers to entry are low, and many firms compete by selling similar, but not identical, products. Difference may be real or artificial.
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Has downward-sloping demand and marginal revenue curves. Small amount of control over price.
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Oligopoly: A market structure in which a small number of interdependent firms compete.
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Every firm that has the ability to affect the price of the good or service it sells will have a marginal revenue curve that is below its demand curve.
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Easy entry and exit to the market
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Highly but not perfectly elastic.
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How monopoloisticaly comp firm maximises profit in the short run
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1. Calculate Profit = (P - ATC) x Q
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2. Profit is maximised or loss is minimised when MR = MC
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May make money, lose money, or break even.
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Long run
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Entry of new firms
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Demand will go down (left)
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Will sell fewer products at every price
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Demand curve will become more elastic
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Four reasons for high barriers to entry
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Government blocks the entry of more than one firm into a market.
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By granting a patent or copyright or By granting a firm a public franchise, which makes it the exclusive legal provider of a good or service.
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Control of a key raw material
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Network externalities
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Product usefulness increases with number users
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Natural monopoly
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Economies of scale are so large one firm has a natural monopoly
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Max profit is where marginal revenue = marginal cost
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MR = MC
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Like every other firm
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Demand curve = product demand curve
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Price Maker
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With a natural monopoly, the average total cost curve is still falling when it crosses the demand curve
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Will produce less and charge a higher price than a perfectly competitive industry
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Causes a reduction in consumer surplus
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Causes an increase in producer surplus
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Dauses a deadweight loss (allocative inefficiency)
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Increases market power (ability to charge higher than marginal cost)
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Firms with market power are more likely to earn economic profits, so because R & D requires $$$ they are also more likely to introduce new products
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Cheatography n. The art of mapping complex subjects into clear, instantly navigable reference guides.
