![]() Companies earning monopoly profits can choose to invest in further innovation to improve existing products or develop new ones. The prospect of earning monopoly profits motivates many businesses to develop new and innovative products that require investment in large fixed costs. ![]() In some cases, a monopoly can produce a good or a service at a lower overall cost than multiple firms competing in the same market. Monopolies can produce some products more efficiently ![]() are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade and Commission Act of 1914. The three major antitrust laws in the U.S. In the U.S., antitrust laws were established in 1890 to protect consumers and markets from harmful monopolistic behaviors. In the real world, a single firm dominates many markets. Monopolies are a matter of considerable political and economic debate. Monopolistic competition is a market where many sellers compete while each producing a slightly differentiated product.Ī duopoly is a market where two sellers control the market.Īn oligopoly is a market where a small group of sellers dominates. Three market structures closely related to monopoly are: Their profits are equal to the area of the rectangle with a width equal to the profit-maximizing price minus average costs (P-AC) and a length equal to the profit-maximizing quantity (Q). Once you find the profit-maximizing price and quantity, you can calculate the monopolist’s profits. Monopolist’s Profit Maximizing Quantity is where MR=MC You can find the equilibrium price by tracing quantity up to the demand curve and then over to the vertical price axis. In a monopoly model, profit maximization occurs at the quantity where the seller’s marginal revenue equals their marginal costs (MR=MC). In your economics courses, you will learn to model monopoly markets using the supply and demand framework. ![]() By providing a unique product buyers want, monopolists are shielded from competition. Monopolists gain market power by producing a good or service without close substitutes. Barriers to entry can take many forms, such as high regulatory costs, laws protecting intellectual property, and high start-up costs. High barriers to entry make it difficult for new firms to join the market and compete with the monopolist. Unlike in perfect competition, where all sellers are price takers, monopolists can set their own prices subject to the market demand curve. In practice, policymakers and regulators define monopolies as markets where a single seller dominates the market with a market share greater than 50 percent. A market with only one seller is called a pure monopoly. When economists model monopolies, they assume a single seller exists in the market. Only one firm or one dominant seller is in the market Monopoly markets have the following key characteristics: The postal system, rail service, and utilities like gas, water, and electricity usually operate as public monopoly firms. Government-granted monopolies exist to provide equitable access to necessary goods and services. These high regulatory costs create a barrier to entry, which makes it difficult for newer, smaller firms to compete.Ī public monopoly is a monopoly run or protected by the government. Legal monopolies can also arise if the costs of complying with government regulations are high. Monopolists whose products are protected by intellectual property rights, such as trademarks, patents, and copyrights are good examples of legal monopolies. A natural monopoly will form in markets if a single firm can serve customers at a lower cost of production than multiple firms trying to do the same.Ī legal monopoly is a monopoly that exists because of laws and regulations restrict competition. In economics, a monopoly is a market with one seller and many buyers.Īs the sole seller in the market, a monopolist has the power to set prices and earn extraordinary profits at the expense of consumers.Ī natural monopoly is a monopoly that exists either because the first seller to the market controls a limited key resource or because of significant economies of scale and other types of naturally occurring high barriers to entry. Modeling a Monopolist’s Profit-Maximizing Price and Quantity
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