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Monopoly Monopoly

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Old Saturday, December 30, 2006
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Economist In Equilibrium
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Not all monopolies are guaranteed profits - there can be occasions when the costs of production are greater than the average revenue a monopolist can charge for their products. This might occur for example when there is a sharp fall in market demand (leading to an inward shift in the average revenue curve). In the diagram below notice that ATC lies AR across the entire range of output. The monopolist will still choose an output where MR=MC for this reduces their losses to the minimum amount.

How do monopolies continue to earn supernormal profits in the long run - revise barriers to entry. See also the pages on price discrimination
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