Monopoly – Features & Price Output Decisions

Monopoly is an important form of imperfect competition where a single firm dominates the market.

1. Meaning and Features of Monopoly

Monopoly is a market structure in which there is single seller selling a product with no close substitutes, and there are strong barriers to entry.

Features:

• Single seller, many buyers.
• Product has no close substitutes.
• Restrictions on entry of new firms (legal, natural, technical).
• Firm is price maker.
• Downward sloping demand curve for product.

2. Demand and Revenue under Monopoly

• Monopolist faces the market demand curve.
• Demand curve is downward sloping.
• Average Revenue (AR) curve is same as demand curve.
• Marginal Revenue (MR) lies below AR.

3. Price–Output Determination (MC = MR)

A monopolist also uses MC = MR rule for profit maximisation.

Steps:

1. Find output where MC = MR and MC is rising.
2. From this output, go up to demand (AR) curve to find price.

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Profit (per unit) = P* − AC at Q*.

4. Comparison: Monopoly vs Perfect Competition

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5. Quick Revision Points

• Monopoly: one seller, no close substitute, entry barriers.
• Monopolist is price maker, faces whole market demand.
• Uses MC = MR to choose output, price from demand curve.

6. Quiz Time 🎯

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