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Monopoly
The Monopoly Market Structure
What is a monopoly exactly?
A monopoly is a market structure characterized by:
A single seller
A unique product
Impossible entry into the market
Under a monopoly, the consumer has only one choice.
Thus, they can either buy from the producer or not
consume
There are no close substitutes.
A Single Seller
One single firm IS the industry.
Demand
Market demand is negatively-sloped. The monopolist faces
a tradeoff between price and quantity sold.
To obtain a higher price, the monopolist must lower
quantity. Or, if it wants to sell a larger quantity, it must
lower price.
MONOPOLY EQUILIBRIUM
Demand and Marginal Revenue
23 Monopoly
MONOPOLY EQUILIBRIUM
Profit Maximization by a Monopolist: Numerical Example
The data in the table below verify that 3 haircuts per hour maximizes the
monopolist’s profit.
MONOPOLY EQUILIBRIUM
Short-Run and Long-Run Equilibrium
The seller charges the same prices to all consumers but offers
each consumer a lower price for a larger number of units
bought—volume discounts, for example.
Price Discrimination with Two Groups of Consumers
(a) (b)
per unit
Dollars
LRAC, MC $1.50
LRAC, MC
1.00 1.00
MR D MR’ D’
Redistribution of wealth
MONOPOLY AND COMPETITION
Monopoly Redistributes Wealth