10.1 A Single-Price Monopolist LO 1, 2
Monopoly is a market structure in which an entire industry is
supplied by a single firm. The monopolist’s own demand curve is
identical to the market demand curve for the product. The market
demand curve is the monopolist’s average revenue curve, and its
marginal revenue curve always lies below its demand curve.
A single-price monopolist is maximizing its profits when its marginal
revenue is equal to marginal costs.
A monopolist produces such that price exceeds marginal cost,
whereas in a perfectly competitive industry, price equals marginal
cost. By restricting output below the competitive level, the
monopolist imposes a deadweight loss on society; this is the
inefficiency of monopoly.
The profits that a monopoly earns may be positive, zero, or negative
in the short run, depending on the relationship between demand and
cost.
For monopoly profits to persist in the long run, there must be
effective barriers to the entry of other firms. Entry barriers can be
natural or created.
In the very long run, it is difficult to maintain entry barriers in the face
of the process of creative destruction—the invention of new processes
and new products to attack the entrenched position of existing firms.