monopoly

• Monopolies are characterized by one firm dominating the market.
• Monopolies can be viewed from a theoretical extreme where there is a pure monopoly with one firm having a hundred percent market share, or from a more realistic perspective of monopoly power, where a firm has the potential to act like a monopoly and controls more than 25 percent of the market.
• Monopolies are price makers due to the unique nature of their products.
• Monopolies have high barriers to entry and exit, which can lead to supernormal profits persisting over time.
• Monopolies operate in an environment of imperfect information on market conditions.
• Monopolies are profit maximizers, producing where marginal cost equals marginal revenue.
• The average revenue curve is the demand curve for a monopoly.
• The average cost curve for a monopoly is U-shaped, with marginal cost cutting average cost at its lowest point.
• Monopolies charge a price greater than marginal cost, exploiting consumers.
• Monopolies restrict output to raise prices and make supernormal /abnormal profits.
• Monopolies are not productively efficient, as they voluntarily forgo economies of scale by not producing at the minimum point on their average cost curve.
• Monopolies can also be inefficient due to X-inefficiency, which occurs when they produce beyond their average cost curve, allowing for waste to creep in.
• Monopolies are statically inefficient, as they are not meeting the three efficiency criteria: productive, allocative, and X.
• Monopolies have the potential for dynamic efficiency, as they are making long-run supernormal profits due to high barriers to entry and imperfect information.
• Monopolies could reinvest these profits back into the company in the form of new technology, innovative new products, research and development, and new capital.