Monopoly happens when
there is only one firm who are in control of producing a certain goods and
services in one industry. It is also known as the king of industries. In this
market structure, the firm will produce unique or un-identical goods, which has
no close substitutes. Product demand curve and market demand curve are
basically identical. The demand curve for monopoly firms is shown in the
diagram below.
In
monopoly, the levels of barriers to entry are high. Globally in monopoly there
is only one company that controls over 25% of a particular market. Because of
that, the possibility for a small or new firm to enter this market is virtually
impossible. Monopoly firms are also price makers for its own market as it
produces only inelastic product.
In the short- run monopoly firms can earn super-normal profits or economic loss but firms can only earn super-normal
profits in the long- run. A monopolist has the ability to practice the price
discrimination strategy in order to earn super-normal profits.
Based
on the diagram above, marginal cost curve intercepts marginal revenue curve.
Therefore, monopoly firms are enjoying super-normal profits as the average
revenue is higher than average cost.
Entry by, Jonathan Kok
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