Monopoly

What is a Monopoly?

A monopoly is a market with a single firm that produces a good or service for which  no close substitute exists.  The most popular example of a monopoly is Eskom, the electricity company in South Africa. 

In this  section the focus is on the equilibrium position of a firm which is the single producer of a commodity or service, with the effect that it possesses the entire market demand for itself. The demand curve for its product is the also the Total market demand curve, with its characteristic negative slope. This leads the monopolist to set the price under the demand curve, higher than it would normally be, because there are no competitors and less will be produced that would be the case under perfect competition. Inputs of the monopolist are, however, still being bought in a free market and the monopoly has less control over it. The assumption then is that the monopolist has identical cost curve that those firms operating under perfect competition. Profit maximisation is still at the point where the additional cost spent to produce an additional unit is equal to the additional revenue that the product or service is going to yield, thus: MR = MC.

Watch this episode by MJM FOODIE on monopoly.