9.2 Market Power
A monopoly has market power, which is the ability to significantly affect the market price. In contrast, no single competitive firm can significantly affect the market price.
A profit-maximizing monopoly charges a price that exceeds its marginal cost. The extent to which the monopoly price exceeds marginal cost depends on the shape of the demand curve.
Market Power and the Shape of the Demand Curve
If the monopoly faces a highly elastic—nearly flat—demand curve at the profit-maximizing quantity, it would lose substantial sales if it raised its price by even a small amount. Conversely, if the demand curve is not very elastic (relatively steep) at that quantity, the monopoly would lose fewer sales from raising its price by the ...
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