- As a single seller of goods/services, the firm in a monopoly market is also the entire market
- There is no differentiation between the firm and the industry
- It is a price maker
- This means that its revenue curves are downward sloping
- In order to maximise profits, it produces at the point where marginal cost (MC) = marginal revenue (MR)
Diagram: Monopoly at Profit Maximising Equilibrium
The firm makes supernormal profit in the short-run & long-run as the AR > AC at the profit maximisation level of output (Q1)
Diagram analysis
- The firm produces at the profit maximisation level of output, where MC = MR (Q1)
- At this level, AR (P1) > AC (C1)
- The firm is making supernormal profit