Question

microeconomic

If the market is a monopoly market, how much does profit equal?

Answer 1

On the other side, when there is only one manufacturer and a number of customers, there is a monopoly. Monopolies are characterized by a lack of economic competition to manufacture goods or services and a lack of viable alternative goods. As a consequence, the single producer controls the price of a good –that is, the producer is a market maker who can decide the price level by selecting the quantity of a good to be made. Companies of public utilities claim to be monopolies. For example, the cost of installing power lines in the case of electricity transmission is so large that it is expensive to have more than one supplier.

Monopoly and perfect competition represent the two extremes of economic systems, but in a perfectly competitive economy and monopoly firms there are some parallels. Each face the same roles of cost and output, and both try to maximize profit. The shutdown decisions are the same, and it is believed that both market factors are perfectly competitive. There are a number of key distinctions, however. Cost equals marginal costs in a perfectly competitive market, and companies gain no economic profit. The price is set above marginal cost in a monopoly and the business receives a positive economic gain.

Perfect competition provides a balance in which a good's cost and quantity are economically efficient. Monopolies create a balance where a good's value is higher and the volume lower than economically effective. Governments also attempt to curb monopolies and encourage increased competition for this purpose.