Implication: The seller is a price maker and the buyers are price takers.
Barriers to Entry
Ownership of a unique resource (Diamonds)
Government granted rights for exclusive production (e.g. patents, copyrights, licenses, concessions)
Economies of scale and declining long-run average costs
Implication: Monopolist faces the entire market demand curve and profits can persist in the short and long-run.
Limits to Monopoly
Size of the market (Pavarotti versus Joe, uncongested bridge)
Definition of market and close substitutes (ornamental versus industrial diamonds, bottled water).
Monopolist versus competitive firm.
CF is a price taker who faces a perfectly elastic demand curve MR=P
M is a price maker who faces the entire market demand curve MR<P
Intuitive proof – to sell another unit the monopolist must lower the price. This means lowering the price not only on the extra unit sold, but also all the other units the monopolist was selling. So MR = Price of the additional unit – the sum of the decreases in all the units previously sold ( e.g. selling 4 units @$100, to sell the 5 unit the price must be lowered to $90, so the monopolist’s MR = $90 – 4X$10=$50)