Competitive Market Recapīelow is Figure 7.3a to remind us how the competitive firm operates. Rather, it exercises power to choose its market price. As a result, a monopoly is not a price taker like a perfectly competitive firm. While a monopoly must be concerned about whether consumers will purchase its products or spend their money on something altogether different, the monopolist need not worry about the actions of other firms. Some new drugs are produced by only one pharmaceutical firm-and no close substitutes for that drug may exist. While a monopoly, by definition, refers to a single firm, in practice, the term is often used to describe a market in which one firm has a very high market share.Įven though there are very few true monopolies in existence, we deal with some every day, often without realizing it: your electric and garbage collection companies for example. Since a monopoly faces no significant competition, it can charge any price it wishes. In the case of monopoly, one firm produces all of the output in a market. Whereas perfect competition is a market where firms have no market power and they simply respond to the market price, a monopolistic market is one with no competition at all, and firms have complete market power. Explain why monopolies cause deadweight loss.Calculate the profits of a monopolist and explain why profits do not cause entry.Describe how a monopoly chooses price and quantity. Understand the Marginal Revenue curve and its significance for a monopolist.
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