MONOPOLY MARKET STRUCTURE - SUMMARY

Monopoly Market Structure



What is a Monopoly Market Structure?

A monopoly is a market structure where there is a single seller/producer of a commodity or
service. One firm one industry, restrictions on the entry of the firms in the industry, profit
motive are some of the characteristics of the market. There are three situations: Profit, loss
and normal profit during a short period and profit earning situation during the long period.
Price and Output Determination Under Monopoly


Price and Output Determination under Monopoly during
Short Period

Under monopoly price and output determination during the short period can be studied under
three situations since one firm one industry is the salient feature of the market as given
under:
1. Profit Making Situation
2. Loss Incurring Situation
3. Normal Profit




Price and Output Determination under Monopoly during Short Period


Profit Making Situation

Under monopoly, the AR and MR are falling and its AC and MC are U- shaped. The output
and price will be determined when the MC=MR and MC cut the MR from its below. When the
AC is less than AR the situation will be of profit earning under monopoly. This situation can
be seen in the above diagram.


Price and Output Determination under Monopoly during Short Period Diagram 1