Chapter 7: Monopoly
Monopoly – refers to a market situation where there is only one seller or producer supplying unique
goods and services. From the Greek word “mono” means one, “polistic” mean seller.
Monopolies are considered extinct or rare nowadays, some of them exist because of some
governmental regulation, but even then, monopolies should always look over their shoulders for
potential entry of competitors in the industry.
Monopoly is a market structure characterized by:
1. Single Seller or Producer
2. Unique Product
3. Impossible Entry
Barriers to entry include:
a. Sole ownership of a vital resource
b. Legal barriers like government franchises and licenses
c. Economies of scale
Other Characteristics of Monopoly Market
- Dictates the price of his commodities
- No need for an extensive advertising
Hypothetical Demand and Cost Schedule for a Monopoly
Output
Price (P)
Total
Revenue (TR)
Marginal
Revenue (MR)
Total Cost
(TC)
Average Total
Cost (ATC)
Marginal
Cost (MC)
1
2
3
4
5
6
7
16
15
14
13
12
11
10
20
30
36
42
50
63
94
Total Profit = (Price – ATC) x Output
= (12 – 10) x 5
= 2 x 5
TP = P10
1
