Let's examine the role each of these characteristics plays in
explaining firm behavior.
- One Firm
- Because there is only one firm, this firm's demand curve is the
demand for the entire market or industry, a typical downward sloping
curve. This means that, in order to increase sales at any given
level, the firm has to lower the price it is charging. We explore
this in detail in the section on Marginal Revenue.
- No Product Differentiation
- Since there is only one firm anyway this isn't really important.
- Restricted Entry
- As we have learned, profits are the incentive for entry. The only
way a firm can remain profitable and a monopoly is if there are
very strong barriers to entry, or if the market is too small for
a second firm.
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