Chapter 15: Monopolies

This chapter focuses on monopolies by comparing monopolies to firms in a competitive market. The chapter defines a monopoly as a firm that is the sole seller of a product without any close substitutions. One difference is that a firm in a competitive market is a price taker whereas a monopoly is a price maker. In general, the price charged by monopolies is higher than the marginal cost. But, there goal is the same to that of a firm in a competitive market, to maximize profit. The force of the invisible hand guides competitive market firms whereas monopolies work in their self interest so often, those interests aren't the interest of society. There are three important barriers that may be the cause as to why other firms don't enter the market for monopolies. One reason is that key resources are owned by one firm. The second reason given is that the government sometimes gives a single firm exclusive rights to a product, such as a drug. The third reason given is that the costs of production make a single producer more efficient than a large number of producers. A kind of monopoly that arises because a single firm can supply the good or service to an entire market at a smaller cost than could two or more, is called a natural monopoly. When looking and the demand curves of a competitive market firm and a monopoly, their demand curves are very different. For a competitive market, the demand curve is perfectly elastic whereas for a monopoly, the demand curve is sloping downwards.  When looking at the general graph of a monopoly, in general the price is greater than the marginal revenue and total cost. Therefore, the point of maximum profit is still where the marginal cost and marginal revenue intersect.