Economics » Market Structures » Imperfect Markets

Short-Run Equilibrium of a Pure Monopoly

Short-Run Equilibrium

The monopoly attains its profit-maximizing objective by following exactly the same rule as the perfectly competitive firm – that is, adjusting its rate of production to the point where Marginal Cost (MC) is equal to Marginal Revenue (MR).

Figure 10.3 illustrates the case of a monopoly firm that earns supernormal profit (i.e. positive economic profit) in the short-run by producing output Q1 where SMC equals MR since price (P1) is greater than Short-run Average Cost (SAC). The area of the rectangle P1ABC gives the magnitude of the monopolist`s profits.

Fig. 10.3: Short-run profit maximizing position for pure monopoly

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