Monopoly Diagram Short Run and Long Run

Readers Question Explain with the help of diagrams the equilibrium of a firm having monopoly power in the market in the short-run and long-run?

monopoly

The diagram for a monopoly is generally considered to be the same in the short run as well as the long run.

Profit Maximisation occurs where MR=MC. Therefore equilibrium is at Qm, Pm.

Features of this diagram

  • There are barriers to entry in Monopoly. Firms are price makers. The industry demand curve is the same as the firms demand curve.
  • Profits are maximised at output where MR=MC. This means they set a price greater than MC which is allocatively inefficient.
  • In this diagram the firms makes supernormal profits because AR is greater than AC.

Monopoly Diagram and Welfare Loss to Society.

monopoly-deadweight-profit

  • In a competitive market, output will be at P1 and Q2.
  • In a monopoly, output will be QM and PM.
  • A monopoly causes a fall in consumer surplus and a fall in producer surplus. Some of the consumer surplus is captured by firms.
  • The red triangle shows the net loss of consumer and producer surplus to society.

 

Long Run Average Costs
economiesofscale

It is assumed monopolies have a degree of economies of scale, which enables them to benefit from lower long run average costs.
Note: In monopolistic competition the short run equilibrium is different to the long run equilibrium

More on Monopoly

32 Responses to Monopoly Diagram Short Run and Long Run

  1. Stanley james May 7, 2010 at 9:56 pm #

    Why a monopolist make abnormal profit in the long run

  2. SARAH May 11, 2010 at 5:05 pm #

    show diagrammatically the long run equilibrium position of a supplier in monopolistic competition?

  3. Tebello July 19, 2010 at 8:52 pm #

    What is the difference between a monopolist and a perfect competitor?

  4. adnan September 10, 2010 at 7:18 pm #

    as far as I know there are different diagrams (3 diagrams) for long-run under monopoly, please answer

  5. mothusi batisi September 15, 2010 at 3:18 pm #

    i want 2 understand the contrast that exist between profit maximisation in perfect competition and monopoly.

  6. celestine October 28, 2010 at 1:55 pm #

    Say something on the type of profits made by monopolies

    • john December 11, 2012 at 5:09 pm #

      Monopolies make supernormal or economic profits in both the long and short run because their is barriers to entry and so no new firms can enter the market and affect their price.

  7. THATAYAONE MOKGELE November 1, 2010 at 10:52 am #

    means of the diagram illustate a perfect competition firm making abormal profit in the short run?

  8. ekeka November 7, 2010 at 2:18 pm #

    explain the equilibrum of profit making monopolist.

  9. Manisha March 13, 2011 at 1:30 pm #

    Show with diagram how monopolist earns supernormal and normal profit in the long run

  10. dave March 21, 2011 at 2:58 pm #

    it is the same in the short run and long run due to the barriers to entry that exist. a firm maximising profit where mc = mr can continue to do so in the long run as there are no new entrants into the market that would make the monopoly have to behave in a different way as a monoply can be protected by things like patents and high start up costs.

  11. jaures kouakep March 29, 2012 at 12:57 pm #

    please try to be more explicit

  12. sonia March 10, 2013 at 2:01 pm #

    show diagrammatically the long run equilibrium position of a supplier in monopolistic competition?

  13. tesfaalem April 18, 2013 at 11:39 am #

    monopoly competition equilibrium with free entry price competition graph

  14. tesfaalem April 18, 2013 at 11:41 am #

    monopoly competition market in long run within the industry or group itself

  15. lawrence May 6, 2013 at 12:25 pm #

    distinguish between long and short runs?

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