PC and Monopoly Lesson

• Describe examples of barriers to entry

  Illustrate and explain how a monopoly determines its price and output

• Explain why a monopoly firm can make economic profits in the short run and the long run

Monopoly

• Review last lesson

• Illustrate and explain why firms in perfect competition can only make economic profits in the short run

Perfect Competition

In a perfectly competitive market, firms can only make economic profit in the short run. In the long run price will fall due to increased supply

​

• a single seller in the market (there are no other firms competing);

• a unique product (there are no close substitutes); and

• high barriers to entry (factors that make it difficult or impossible for other firms to enter the market).

• Ownership of a vital resource e.g. land

• Legal barriers such as licences, patents and copyright

• Financial barriers such as high start-up costs

• The MR curve lies below the demand curve for a monopoly firm.

• MR decreases as quantity increases due to the fact that total revenue is increasing at a decreasing rate.

​

MR Curve in Monopolies

• We assume the monopoly firm wants to maximise profit so will choose to produce a level of output where MC = MR.

• Since the monopoly firm has chosen its optimal level of output, it can now choose the maximum price it can charge in order to sell that quantity of output.  This price can be seem from the demand curve. 

​

Price and Output