Monopoly

Characteristics of Monopoly

• One large firm (the firm is the market)
• Unique product (no close substitutes)
• High Barriers - firms cannot enter the industry
• Monopolies are Price Makers
• Some advertising

Some monopoly is called Natural Monopoly, as they are the single firm and produced at Economies of Scale.

Here's the explanation in English:

Allocative Efficiency

• Condition: Price equals Marginal Cost (( P = MC )). This ensures that the last unit produced is valued by consumers exactly at the cost of resources used to make it.
• Monopoly Outcome: A monopolist maximizes profit where Marginal Revenue equals Marginal Cost (( MR = MC )). Because the demand curve is downward sloping, ( MR < P ). Therefore, at the monopoly output, ( P > MC ).
• Result: The monopoly produces less than the allocatively efficient quantity, creating a Deadweight Loss (DWL).

Productive Efficiency

• Condition: Producing at the lowest point on the Average Total Cost curve (( ATC_{min} )).
• Monopoly Outcome: There is no inherent mechanism forcing a monopoly to produce at minimum ATC. Unlike perfect competition, where long-run equilibrium forces firms to the efficient scale, a monopolist may operate with Excess Capacity or at a higher cost.
• Result: Monopolies are not necessarily productively efficient; they can sustain higher average costs due to lack of competitive pressure.

Summary Comparison

相关笔记

Natural Monopoly
Imperfect Competition
Comparison Table of The 5 Market Structure