Monopoly

A monopoly is a firm that is the sole seller of a product without close substitutes and has market power to influence prices. Monopolies can arise when a firm owns a key resource, the government grants exclusive rights, or large setup costs create natural monopolies. A profit-maximizing monopoly produces where marginal revenue equals marginal cost and charges a price corresponding to the height of the demand curve. This results in deadweight loss since the monopoly underproduces relative to the socially efficient quantity where price equals marginal cost. Governments address monopolies through antitrust laws, regulation, public ownership, or sometimes doing nothing. Price discrimination allows monopolies to further extract consumer surplus and may increase efficiency by eliminating deadweight loss if buyers can be