That is, should we care who gets the wealth, as long as wealth is being generated? That would be a "normative" statement. As a disinterested economist, we might say "who cares?" especially if we are generating wealth. This leads to an increase in the size of the producer surplus and a decrease in the size of the consumer surplus. A firm is able to earn positive economic profits, and because they are a monopoly, other firms are unable to enter their market and drive down price. In a monopoly, these competitive pressures are absent. Generally, this extra market entry is enough to increase production and decrease equilibrium price to the point where zero economic profits are seen. If firms in an industry are making positive economic profits, then other firms have an incentive to enter the market to try and deliver these positive profits to their owners. In a competitive market, it is the act of competition that drives prices towards the equilibrium price and quantity at which the marginal firm makes zero economic profits - they are earning just enough money to cover their costs of production and to pay their owners a return that is sufficient to cover their risks.
![monopoly market monopoly market](https://i.ytimg.com/vi/Eq9slbjIgjA/maxresdefault.jpg)
In a monopoly, a firm will typically make greater than zero economic profit (remember that term?).
![monopoly market monopoly market](https://cdn.educba.com/academy/wp-content/uploads/2019/06/Monopoly-Examples.jpg)
Monopolies are typically assumed to be undesirable market structures. Firms in a case such as this may have a lot of market power, and may face a lot of scrutiny from the government, but they are not technically monopolies. If a firm obtains an inordinate market share due to offering a product that many people want to buy, we do not have a monopoly. These are not monopolies, in that firms in these markets do have competitors, and consumers do have choices. We will talk more about natural monopolies a bit later in the course.Īt this point, you might think about some markets that have a dominant market share held by a single firm, such as Microsoft in the market for spreadsheet software.
![monopoly market monopoly market](https://data-flair.training/blogs/wp-content/uploads/sites/2/2020/09/Market-Structure-1200x900.jpg)
MONOPOLY MARKET FREE
A monopolist is free to set prices or production quantities, but not both because he faces a downward-sloping demand curve. A monopoly is a market with only one seller. This is the most extreme, but not the most common, example of market power. If you are able to move the equilibrium price with your own choices, then you can be referred to as a "price-setter." In reality, in many situations, somebody in the market has some power to change prices through their individual actions. Hence, you have to "take" whatever the price is. In this case, the equilibrium price in a market is defined by so many different transactions that anybody who wishes to buy or sell in this market has to do so at the market equilibrium price, and they are not able to move the equilibrium price with their own actions. Our first assumption is that of market power, which states that everybody is a price taker, or that there are many buyers and sellers in a market. For this section, please read Chapter 11: "Price Searcher Markets with High Entry Barriers." from Gwartney et al.įrom Greenlaw et al.