Topic 15: What is Monopoly

What is monopoly? A monopoly is single firm of a good for which there isn’t any substitutes. There should also be high barriers to entry, which other firms cannot enter the market easily and provide the good. Monopolies are often created because of legal barriers such as patent laws. The monopoly has control both over the quantity produced and price charged; it also faces he entire demand curve for the good produced. Therefore, it will face a downward-sloping demand curve. It follows the general rule for profit maximization, MR=MC. As the monopolist does not know exactly how much consumers are willing to buy at particular prices, it must look for the optimum price. In the video, one comentor mentions some of the problems with monopolies, but he says that those aren’t what economists are concerned with. The problem refers to the inefficiency and the efficiency of the monopolies, because sometimes the deadweight lost arises. Monopolies are often looked at as bad, but they can also considered good because the average cost decreases in monopolies, which can produce a large enough of product. If given that in the long run monopolists spend all of their surplus in maintaining their monopoly position, I wouldn’t think it’s worthwhile to attain a monopoly because their won’t be an economic profit.