A monopoly is a market structure where a single company is the only seller of a product. In this market, there are no close substitutes for the product, and other companies find it very difficult to enter and compete.

Key Features:

• One single firm controls the entire market.
• The product sold is unique with no close alternatives.
• High barriers to entry stop new companies from joining the market.
• The company acts as a price maker, meaning it can set its own prices.
• Because of a downward-sloping demand curve, the firm must lower prices if it wants to sell more units.

Reasons for Barriers to Entry:

• Economies of scale: Where it is more efficient for one firm to produce everything (natural monopoly).
• Legal restrictions: Such as patents, government licenses, or exclusive franchises.
• Control of resources: Having exclusive access to essential raw materials.
• Strategic tactics: Such as using low prices to drive out potential competitors.

How Profits are Made:

• The firm maximizes profit by producing where Marginal Revenue (MR) equals Marginal Cost (MC).
• Because of the lack of competition, the company can earn supernormal profits in both the short and long term.