After finding out where MC meets MR, draw a vertical line to the Demand curve, and the corresponding value on the vertical axis is the price. The Monopoly is a supernormal profit maker and using the profit maximization rule MC = MR we can find the Quantity and the Price. The Marginal Revenue curve has double the slope of the Average Revenue curve.A monopolist can choose the level of output or the price, not both since it has a negatively sloped demand curve.Average RevenueĪverage Revenue is Total Revenue/Quantity. Marginal revenue is the revenue earned by selling one more unit. Revenue Curves for a Monopoly Total Revenue The lack of competition may cause the monopoly firm to produce inferior goods and services because they know the goods will sell. Monopolists can sometimes use price discrimination, where they charge different prices on the same product for different consumers. The monopolist could set a very high price for the product leading to the exploitation of consumers as they have no option but to buy it from the seller due to the lack of competition in the market. Since the monopolist is making abnormal or supernormal profits, the firm can invest that money into research and development. Customers may get better quality products at reduced prices leading to enhanced consumer surplus and satisfaction. The seller may pass this benefit down to the consumer in terms of a lower price. Since there is a single seller in the market, it leads to economies of scale because of large-scale production which lowers the cost per unit for the seller. In other types of market structures prices are not stable and tend to be elastic as a result of the competition. This is because there is only one firm involved in the market that sets the prices since there is no competing product. In a monopoly market structure, the prices are pretty stable. If abnormal profits are available in the long run, other firms will enter the competition with the result abnormal profits will be eliminated. This is not possible under perfect competition. A monopolist can be a loss-making or revenue-maximizing too. While a monopolist can maintain supernormal profits in the long run, it doesn’t necessarily make profits. The monopolist decides the price of the product since it has the market power. There are no close competitors in the market for that product. There are significant barriers to entry set up by the monopolist. If new firms enter the industry, the monopolist will not have complete control of a firm on the supply. These barriers imply that under a monopoly there is no difference between a firm and an industry. Ex: When Apple started producing the iPad, it arguably had a monopoly over the tablet market. One firm producing a good without close substitutes. The following are key features that are typically found in a monopoly market structure: 1. Characteristics of a Monopoly Market Structure
For example, many gulf countries have a monopoly in crude oil exploration because of abundant naturally occurring oil resources. For example, De Beers is known to have a monopoly in the diamond industry.Ī Natural Monopoly Market Structure is the result of natural advantages like a strategic location or an abundance of mineral resources. However, from a regulatory view, monopoly power exists when a single firm controls 25% or more of a particular market. In achieving these goals, we often combine simple utility, functional innovation and formal beauty.In a Monopoly Market Structure, there is only one firm prevailing in a particular industry. Even useful objects can have symbolic function as well as a pragmatic one. "In designing everyday objects," says Graves, "I want to encourage the impression of familiarity and also allow these objects to be seen in a slightly different way. The distinctive shape of the hotels is based on a Graves architectural building in The Hague. The houses are in Graves' signature blue color derived from old fashioned blueprints. The Monopoly Game was designed in 2002, and Graves modeled the pewter game pieces on his own product designs, including a teakettle, a cup and saucer, a wall clock, a telephone, a blender and a toaster. It was Graves' own idea to design new versions of classic games beginning with a chess set in 2000 with inspiration from the famous Bauhaus Chess Set. This collection transformed the retailer from a discount store to a design destination. The Michael Graves Design brand at Target was the first example of an architect/designer having his own consumer brand of products. Notes from the Archive: American architect, Michael Graves' legacy includes designing over 350 buildings, and 2000 products.