Entry 15: What is a Monopoly?

What makes a monopoly is essentially the fundamentals of a market. A monopoly is a firm in an industry or market that holds all the supply of the particular product of the market. For example, in the automobile market, a firm that is a monopoly would be the only supplier of cars. This is because in a market where there is a monopoly, there are barriers to entry. Barriers to entry have different types. The legal barrier to entry is where the government sets a rule or legislation that prohibits the entry of firms and grants the sole production right of the particular good or service to the one single firm. This might be because the government deems that it is more efficient and convenient for one firm to be the only supplier. The natural barrier to entry is sometimes illicit because in a monopolistic market where there is a natural barrier to entry, the monopoly might have accumulated so much capital that competition is impossible and they might have achieved this efficiency through illicit bargains or trades. A monopoly sets the price in the market. Because the firm is the sole producer of the product, it can manipulate the quantity produced to a profit maximizing quantity. They reach this by producing at the point where marginal cost equals marginal revenue. At this point, monopoly produces at the profit maximizing quantity. However, it doesn't just stop there, monopolies can still jack up the price because they are the only provider and the more essential the products are, the more inelastic the prices would be and the more they can raise. Monopoly might be good if it is regulated by the government. The reason monopoly tends to be bad is because they produce at the profit maximizing level without competitors so the price is usually higher and the quantity lower. This causes a inefficiency. However, with government regulation, it might be able to utilize the benefit of a monopoly, which is the efficient production to provide a wider and cheaper service. Although monopolies spend surplus on the maintaining of monopolies, they still chip in a huge increase in producer surplus by minimizing consumer surplus as much as possible because they charge at the highest people are willing to pay and therefore, is profitable.