| Monopoly Profit |
Article Index for Monopoly |
Shopping Profit |
Website Links For Monopoly |
Information AboutMonopoly Profit |
| CATEGORIES ABOUT MONOPOLY PROFIT | |
| market failure | |
| monopoly economics | |
| profit | |
|
In a '' is a useful idealized model rather than a naturalistic description.) By contrast, lack of competition in a market creates a downward sloping demand curve for a monopolist or Oligopolist : although they will lose some business by raising prices, they will not lose it all, and it may be more profitable in most situations to sell at a higher price. This does not mean that monopolists are not price takers. It only says that they have the option of being either a "price taker" (at a level of output of their own choosing), or a "quantity taker" (at a price of their own choosing). They can set their own price and accept a level of output determined by the market, or they can set their output quantity and accept the price determined by the market. They cannot set both price and output. A firm with monopoly power setting prices will typically set price at the profit maximizing level. The most ''profitable'' price that they can set (the '''monopoly price''') is where the optimum output level (where Marginal Cost (MC) equals Marginal Revenue (MR) as seen on the diagram below) meets the demand curve. Under normal market conditions for a monopolist, this price will be higher than the equilibrium price (which is the price at which Marginal Cost for the producer equals Marginal Benefit for the consumer). In the chart below the shaded area represents the profits of the monopolist. The lower half represents the normal profits that would go to a competitive firm (ignoring output losses). The upper half represent the additional economic profit going to the monopolist. |
|
|