is a firm that is the only producer of a good that has no close substitutes. An industry controlled by a monopolist is known as a monopoly.

  to earn economic profits, a monopolist must be protected by a barrier to entry—something that prevents other firms from entering the industry.

-why monopolists exist

when increasing returns to scale provide a larger cost advantage to a single firm that produces all of an industry’s output. (Figure 14-3)

 The Monopolist’s Demand Curve & Marginal Revenue (Figure 14-4, 14-5)

-Quantity Effect

-Price Effect

   MR = MC at the monopolist’s profit- maximizing quantity of output

·         P = MC at the perfectly competitive firm’s profit-maximizing quantity of output

·         P > MR = MC at the monopolist’s profit- maximizing quantity of output

o   Produces a smaller quantity: Q m < Q c

o   Charges a higher price: P m > P c

o   Earns a profit 

Monopoly: The General Picture (Figure 14-7)

 Profit = TR – TC   = (P m x Q m) – (ATC m x Q m)   = (P m – ATC m) x Q m

Monopoly and Public Policy

 Monopoly causes inefficiency (Figure 14-8)

limits the price that a monopolist is allowed to charge.

Unregulated and Regulated Natural Monopoly (Figure 14-9)

offers it product to all consumers at the same price.

 takes place when a monopolist charges each consumer his or her willingness to pay – the max that the consumer is willing to pay.

o   the greater the # of prices the monopolist charges, the lower the lowest price – that is, some consumers will pay prices that approach MC

o   the greater the # of prices the monopolist charges, the more money it extracts from consumers.