A pure monopolist in an industry is a single seller. It is rare for a firm to have a pure monopoly – except when the industry is state-owned and has a legally protected monopoly
The Royal Mail used to have a statutory monopoly on delivering household mail. This is changing fast as the industry seen fresh competition. The Royal Mail was part-privatised in 2013.
A working monopoly: A working monopoly is any firm with greater than 25% of the industries' total sales. In practice, there are many markets where businesses enjoy a degree of monopoly power even if they do not have a 25% market share.
A dominant firm is a firm that has at least forty per cent of their given market
Price and output under a pure monopoly
A monopolist can take market demand as its own demand curve
The firm is a price maker but it cannot charge a price that the consumers will not bear
A monopolist has market power which is the power to raise price above marginal cost without fear of losing supernormal profits to new entrants to a market
In this sense, price elasticity of demand acts as a constraint on the pricing-power of the monopolist
Assuming that the monopolist aims to maximise profits (where MR=MC), we establish a short run price and output equilibrium as shown in the diagram below
Geoff Riley FRSA has been teaching Economics for nearly thirty years. He has twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.