4.2 Monopoly
A monopoly is a single seller behind high barriers to entry; it produces where MR = MC, charges the higher demand-curve price, and creates deadweight loss.
A monopoly exists when one firm supplies the whole market and barriers keep rivals out: legal barriers like patents and licenses, control of a key resource, or economies of scale. A natural monopoly is the scale case — ATC keeps falling over the relevant range of output, so one firm can serve the market at lower cost than several could.
The monopolist produces the quantity where MR = MC, then reads the price straight up on the demand curve — not at the MR = MC intersection. Profit per unit is P minus ATC at that quantity, so total profit is (P − ATC) × Q. A profit-maximizing monopoly always operates on the elastic portion of its demand curve, where MR is still positive.
Compared with perfect competition, a monopoly charges a higher price and produces less output. Because P > MC at the chosen quantity, some units that buyers value above their cost never get made — that lost total surplus is the deadweight loss of monopoly, and it is why monopoly is allocatively inefficient.
Key terms for 4.2
Drag the curves yourself — the fastest way to make 4.2 stick.
Practice the math
Reading the monopoly price at the MR = MC intersection. That intersection gives the quantity only — go straight up from it to the demand curve to find the price.
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