Monopoly Price Output and Profit - revision video

• The Royal Mail used to have a statutory monopoly on delivering household mail. This is changing fast as the industry seen fresh competition. The Royal Mail was part-privatised in 2013.
• A working monopoly: A working monopoly is any firm with greater than 25% of the industries' total sales. In practice, there are many markets where businesses enjoy a degree of monopoly power even if they do not have a 25% market share.
• A dominant firm is a firm that has at least forty per cent of their given market

Price and output under a pure monopoly

• A monopolist can take market demand as its own demand curve
• The firm is a price maker but it cannot charge a price that the consumers will not bear
• A monopolist has market power which is the power to raise price above marginal cost without fear of losing supernormal profits to new entrants to a market
• In this sense, price elasticity of demand acts as a constraint on the pricing-power of the monopolist
• Assuming that the monopolist aims to maximise profits (where MR=MC), we establish a short run price and output equilibrium as shown in the diagram below

Test your Knowledge MCQ Monopoly Pricing - revision question