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Monopoly:
This is a situation where a single
producer (firm) is the sole producer
of a good that has no close
substitutes.
Sources of Monopoly:
 The firm may control the entire supply of raw
materials required to produce that output.
 The firm may have a patent or copyright.
 The case of “Natural Monopoly”. Economies
of Scale may permit only one firm to be
efficient in the market.
Natural Monopoly
P
2.25
2
1.5
ATC
D
0
20
40
Q
Sources of Monopoly:
 The firm may control the entire supply of raw
materials required to produce that output.
 The firm may have a patent or copyright.
 The case of “Natural Monopoly”. Economies
of Scale may permit only one firm to be
efficient in the market.
 The case of Government Franchises.
 Through Mergers and Acquisitions.
Characteristics of Monopoly:
 A single seller: A single firm produces all
industry output. The monopoly is the industry.
 Entry into the industry is totally blocked.
 Imperfect dissemination of information: Cost,
price, and product quality information are
withheld from uninformed buyers.
8
7
TR2= 8(2)=16
AR2=8=P
TR3= 7(3)=21
AR3=7=P
MR3= TR3-TR2=21-16=5
MR
0
2 3
Quantity
Price
MR=MC
P
b
P
a
c
MC
AVC
ATC
ATC
AVC
MR
0
Q
D
Quantity
$
10
9
8
7
6.5
6
5
4
3
2
MC
ATC
AVC
1
0
D
MR
1 2
3
4
5
6
7 8
9 10
Q
Find the Profit maximizing output from the
following information.
Demand Information
Cost Information
P
Q TR MR
Q
TC MC
12
0
0
--
0
5
--
11
1
11
11
1
7
2
10
2
20
9
2
10
3
9
3
27
7
3
14
4
8
4
32
5
4
19
5
7
5
35
3
5
25
6
Profit =
TR – TC =
32 – 19 = 13
Price
ATC
MC
b
P
c
AVC
a
MR
0
Q
D
Quantity
Price
MC
b
P
m
c
a
AVC
n
MR
0
ATC
Q
D
Quantity