Answer to Question #256899 in Economics of Enterprise for Billy

Question

Under monopoly

Answer 1

Solution:

Under a monopoly, there is the existence of a single seller, selling a unique product in the market. The seller faces no competition since he is the sole seller of products with no close substitute. The seller enjoys the power of setting the price for his products.

A monopolistic firm faces a downward-sloping demand curve or average revenue curve. Furthermore, because average revenue falls as more units of output are sold in a monopoly, marginal revenue is less than average revenue. In other words, when there is a monopoly, the MR curve is lower than the AR curve.

 

In a monopoly, the equilibrium level is the level of output at which marginal revenue equals marginal cost. As long as the marginal revenue exceeds the marginal cost, the producer will continue to produce. The profit will be at its maximum when MR equals MC, and the producer will stop producing after this point.