- Describe, using examples, the assumed characteristics of a monopoly: a single or dominant firm in the market; no close substitutes; significant barriers to entry.
- Explain that the average revenue curve for a monopolist is the market demand curve, which will be downward sloping.
- Explain, using a diagram, the relationship between demand, average revenue and marginal revenue in a monopoly.
- Explain why a monopolist will never choose to operate on the inelastic portion of its average revenue curve.
- Explain, using a diagram, the short- and long-run equilibrium output and pricing decision of a profit maximizing (loss minimizing) monopolist, identifying the firm’s economic profit (or losses).
- Explain the role of barriers to entry in permitting the firm to earn economic profit.
Now that we have looked at what makes up perfect competition, we turn our attention to imperfect competition and go right to the opposite end of the market structure spectrum... monopoly. We'll start off with looking at what characterizes the market and then look at the graphs. These are a bit more complicated than perfect competition so it's important that you follow the steps so that you don't put price in the wrong place... also be neat (with a ruler!) and remember the relationship between MC and AC curves. The profit maximising rule is still the same.... "where MR equals MC, that is where we want to be"!