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
Profit maximising price and output
Maximizing Profit under Monopoly
Featured
CPD courses

Teaching the New A Level Economics: Quantitative Methods

This course focuses solely on teaching & learning resources and approaches to delivering the wider range of quantitative methods contained in the new A Level and AS Level specifications. We've put together a comprehensive collection of teaching materials that will help accelerate your planning and preparation for the extended QM elements for A Level Economics.

Learn more ›

Teaching & learning products

The UK Economy in 2015 Revision Guide

This new full colour 28 page revision guide by tutor2u's Geoff Riley provides all AS & A2 Economics students with a data and chart-rich summary of the key issues facing the UK Economy in 2015.

£4.00

AS Macroeconomics Revision Guide

This 44-page, full-colour printed revision guide is designed to support students preparing for their AS Economics exams on macroeconomics. tutor2u's Geoff Riley provides comprehensive coverage of all the core macroeconomic topics for AS Economics

£4.00