Monopoly

A monopoly is a market with a single seller facing the entire market demand $P(Q)$. The monopolist's optimum is $MR = MC$ — restrict output below the competitive level so that the marginal revenue from the last unit just covers its marginal cost. The result is a price above marginal cost, output below the competitive level, positive economic profit, and a deadweight-loss triangle of trades worth more to buyers than they cost to produce that don't happen.

type: monopoly-cs-dwl
a: 10
b: 1
mc: 2

When to use

Use the monopoly model whenever a single firm sets price for a homogeneous good with no close substitutes. The model is the foundation for almost every Topic 2 result: the Lerner Index markup, the linear-demand shortcut $MR = A - 2bQ$, Price Discrimination strategies, Per-Unit Tax vs Lump-Sum Tax incidence, and the Double Marginalization benchmark for vertical chains. The monopolist always operates on the elastic portion of demand ($|E| > 1$) — never on the inelastic portion, where cutting price would reduce revenue.