Capital requirements: Production processes that require large investments of capital, perhaps in the form of large research and development costs or substantial sunk costs, limit the number of companies in an industry: [11] this is an example of economies of scale. Control of natural resources: A prime source of monopoly power is the control of resources (such as raw materials) that are critical to the production of a final good. Profit maximizer: monopolists will choose the price or output to maximise profits at where MC=MR.This output will be somewhere over the price range, where demand is price elastic. If the total revenue is higher than total costs, the monopolists will make abnormal profits.

Price discrimination: A monopolist can change the price or quantity of the product. They sell higher quantities at a lower price in a very elastic market, and sell lower quantities at a higher price in a less elastic market. Find sources: "Monopoly"– news · newspapers · books · scholar · JSTOR ( October 2021) ( Learn how and when to remove this template message) Barriers to entry: Barriers to entry are factors and circumstances that prevent entry into market by would-be competitors and limit new companies from operating and expanding within the market. PC markets have free entry and exit. There are no barriers to entry, or exit competition. Monopolies have relatively high barriers to entry. The barriers must be strong enough to prevent or discourage any potential competitor from entering the market Product substitutability: Product substitution is the phenomenon where customers can choose one over another. This is the main way to distinguish a monopolistic competition market from a perfect competition market. In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. High liquidation costs are a primary barrier to exiting. [15] Market exit and shutdown are sometimes separate events. The decision whether to shut down or operate is not affected by exit barriers. [ citation needed] A company will shut down if price falls below minimum average variable costs.Economic barriers: Economic barriers include economies of scale, capital requirements, cost advantages and technological superiority. [8] Excess profits: Excess or positive profits are profit more than the normal expected return on investment. A PC company can make excess profits in the short term but excess profits attract competitors, which can enter the market freely and decrease prices, eventually reducing excess profits to zero. [21] A monopoly can preserve excess profits because barriers to entry prevent competitors from entering the market. [22] The number of companies in the market: If the number of firms in the market increases, the value of firms remaining and entering the market will decrease, leading to a high probability of exit and a reduced likelihood of entry. First-mover advantage: In some industries such as electronics, the pace of product innovation is so rapid that the existing firms will be working on the next generation of products whilst launching the current ranges. New entrants are destined to fail unless they have original ideas or can exploit a new market segment.

Find sources: "Monopoly"– news · newspapers · books · scholar · JSTOR ( January 2022) ( Learn how and when to remove this template message)This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. Profit maximization: A PC company maximizes profits by producing such that price equals marginal costs. A monopoly maximises profits by producing where marginal revenue equals marginal costs. [23] The rules are not equivalent. The demand curve for a PC company is perfectly elastic – flat. The demand curve is identical to the average revenue curve and the price line. Since the average revenue curve is constant the marginal revenue curve is also constant and equals the demand curve, Average revenue is the same as price ( AR = TR Q = P ⋅ Q Q = P {\displaystyle {\text{AR}}={\frac {\text{TR}}{Q}}=P\cdot {\frac {Q}{Q}}=P} ). Thus the price line is also identical to the demand curve. In sum, D = AR = MR = P {\displaystyle {\text{D}}={\text{AR}}={\text{MR}}=P} . Technological superiority: A monopoly may be better able to acquire, integrate and use the best possible technology in producing its goods while entrants either do not have the expertise or are unable to meet the large fixed costs (see above) needed for the most efficient technology. [9] Thus one large company can often produce goods cheaper than several small companies. [12] Elasticity of demand: The price elasticity of demand is the percentage change of demand caused by a one percent change of relative price. A successful monopoly would have a relatively inelastic demand curve. A low coefficient of elasticity is indicative of effective barriers to entry. A PC company has a perfectly elastic demand curve. The coefficient of elasticity for a perfectly competitive demand curve is infinite. [20] Economies of scale: Decreasing unit costs for larger volumes of production. [9] Decreasing costs coupled with large initial costs, If for example the industry is large enough to support one company of minimum efficient scale then other companies entering the industry will operate at a size that is less than MES, and so cannot produce at an average cost that is competitive with the dominant company. And if the long-term average cost of the dominant company is constantly decreasing [ clarification needed], then that company will continue to have the least cost method to provide a good or service. [10]

While monopoly and perfect competition mark the extremes of market structures [16] there is some similarity. The cost functions are the same. [17] Both monopolies and perfectly competitive (PC) companies minimize cost and maximize profit. The shutdown decisions are the same. Both are assumed to have perfectly competitive factors markets. There are distinctions, some of the most important distinctions are as follows: This section needs additional citations for verification. Please help improve this article by adding citations to reliable sourcesin this section. Unsourced material may be challenged and removed. Marginal revenue and price: In a perfectly competitive market, price equals marginal cost. In a monopolistic market, however, price is set above marginal cost. The price equal marginal revenue in this case. [18]Network externalities: The use of a product by a person can affect the value of that product to other people. This is the network effect. There is a direct relationship between the proportion of people using a product and the demand for that product. In other words, the more people who are using a product, the greater the probability that another individual will start to use the product. This reflects fads, fashion trends, [13] social networks etc. It also can play a crucial role in the development or acquisition of market power. The most famous current example is the market dominance of the Microsoft office suite and operating system in personal computers. [14] Manipulation: A company wanting to monopolise a market may engage in various types of deliberate action to exclude competitors or eliminate competition. Such actions include collusion, lobbying governmental authorities, and force (see anti-competitive practices). The boundaries of what constitutes a market and what does not are relevant distinctions to make in economic analysis. In a general equilibrium context, a good is a specific concept including geographical and time-related characteristics. Most studies of market structure relax a little their definition of a good, allowing for more flexibility in the identification of substitute goods. The most significant distinction between a PC company and a monopoly is that the monopoly has a downward-sloping demand curve rather than the "perceived" perfectly elastic curve of the PC company. [29] Practically all the variations mentioned above relate to this fact. If there is a downward-sloping demand curve then by necessity there is a distinct marginal revenue curve. The implications of this fact are best made manifest with a linear demand curve. Assume that the inverse demand curve is of the form x = a − b y {\displaystyle x=a-by} . Then the total revenue curve is TR = a y − b y 2 {\displaystyle {\text{TR}}=ay-by