This means that it can meet consumer demand while maximizing its profits, but this is not likely.Īlthough monopolies do not face competition, they can use advertising to increase the total demand for its product and improve their public image in order to avoid governmental intervention for restriction of monopolistic power. As soon as maximization is achieved, the monopoly is at equilibrium. Nevertheless, the selling price should sustain the maximum difference between total cost and total revenues. The monopoly has two options: either to determine the price and see how much quantity consumers can absorb at this price, or to determine the quantity produced and see at what price it can be absorbed by consumers. The key principle for determining the selling price is profit maximization. Unlike perfect competition, the monopoly determines the level of prices, which are usually above its marginal cost.
What is the definition of monopoly? The product has no substitutes therefore, consumers are forced to purchase it from the monopoly. No other company competes with them in that space. In other words, you can only buy a product from one company. Definition: Monopoly is the market condition where a single supplier dominates the market for a given product.