Monopoly

Overview

A monopoly is a market in which there is only one player for a given product, and there are barriers to entry for other firms to compete with the monopoly. When there is only one firm, that firm gets to set the price of its product.

Supply and Demand

In a monopoly, the demand for the firms product is downward sloping. That is, the monopoly does not face a flat demand curve, as it would in a competitive market.

Pricing

The demand curve is downward sloping.



The marginal revenue can be plotted against the demand. The marginal revenue equals the price for the first unit sold. As the price drops and more units are sold, the marginal revenue is the sum of the new revenue from the new units sold minus the loss in revenue from the decreased price on prior units.



The following polts the marginal cost and the average total cost against demand and marginal revenue.