The characteristics of a Monopoly are:
- Single Seller
- No close substitutes
- Price maker
- Higher barriers to entry
How would the graph of a monopoly look ?
DeBeer's control over the diamond market historically is a classic example of a monopoly. The Marginal Revenue (MR) Curve lies below the Demand curve because a monopolist must lower the price to sell more units, thus earning less per additional unit sold.
The Marginal Cost (MC) Curve shows the cost of producing one more unit. The Average Total Cost (ATC) Curve shows the per-unit cost of production.
A monopoly has a higher price than a perfectly competitive firm because it is the only seller of a good or service. This means that it has no competition and can set whatever price it wants. Perfectly competitive firms, on the other hand, have to compete with other firms for customers.
A monopoly produces a lower quantity than a perfectly competitive firm because it wants to maximize its profit. This means that it will produce a quantity where the marginal revenue (MR) from producing an additional unit of output is equal to the marginal cost (MC) of producing that unit.
A monopoly has a higher ATC than a perfectly competitive firm because it does not have the same incentive to be efficient. This is because a monopoly is not under the same pressure from competition to keep costs low. Perfectly competitive firms, on the other hand, have to be efficient in order to survive.