Monopoly

Monopoly

Assumptions of the model	There is only one firm producing the products Barriers to entry exist so that new firms cant enter the market and they maintain the industry As a concequence of the barriers to entry the monopolist may be able to make abnormal profit in the long run
Sources of monopoly power/barriers to entry	The firm may be able to keep its monopoly in several ways 1. Economies of scale- If a firm is a monopoly they will be feelong economies of scale, the firms that are trying to enter will be too small and not enough expertise, therdore they will be forced to make losses as they simply cant compete. 2. Natural monopoly 3. Legal barriers Patents allow legal monopolies to encourage creativity and inventions Governments create a nationalized industry 4. Brand loyalty A company may gain huge brand loyalty, consumers think of the product as a brand Kleenex 5. Anti competitive behavior Firms may try to adopt restrictive practices, -price war, the firm iss able to lower their prices so much kicking other firms out of the industry
The demand curve and the profit maximizing level of out put	The firms demand curve is the industries demand curve,
Possible profit situations in monopoly	The monopoly is able to make abnormal profits in the long run. However they can also make losses and if they closed down the industry would also close
Revenue maximization	The firm may want to maximize revenue rather than profit.
Efficiency in monopoly	There is neither productive efficienct nor allocative
Advantages and disadvantages
The disadvantages