Monopolies

Written by Matt
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Monopolies feature at AS but at A Level you need to be able to draw a costs and revenues diagram to show the effect on price, quantity and efficiency. This presentation will take you through calculating the costs and revenues through to the diagram and the impact on welfare.

A monopoly is a market dominated by one single firm. Their demand curve is the market demand curve. They are protected by barriers to entry. Something, usually large setup costs, prevents new firms entering the market. This means that monopolies can make large abnormal profits without new firms competing it away. In other words monopolies are called price makers.

This monopoly power allows them to restrict sales and push up the price. Instead of operating where demand equals supply they will operate where marginal revenue equals marginal cost, creating abnomal profit but also a welfare loss.

The presentation below takes you through this in more detail but if you are a little hazy on calculating costs and revenue calculations then it might be worth revising those first, or you can just skip straight to the diagram towards the end.

 

 

 

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