Since P is read off the market demand curve, the market demand curve is also the firm s AR curve. Because the monopolist faces a negatively sloped demand curve to sell each additional unit of the good, the monopolist has to lower the market price it charges on all units of the good. In describing the monopolist s profit-maximizing behavior we are not able to derive a supply curve. There is no unique relationship between market price and the quantity supplied for a monopolist. Comparing the industry outcome under monopoly and under prefect competition.
Monopoly produces less output and charges a higher price than in perfect competition.
In a monopoly as in a perfectly competitive industry, positive profits and losses are signals for resources to flow into, and out of, respectively, the industry. A monopoly making losses in the LR will not continue producing. If the monopoly is making positive profits in the SR however, new firms will want to enter the market. In monopoly markets there are impediments that prevent new firms from entering the market. If monopoly profits are to persist in the long run, the entry of new firms must be prevented by effective entry barriers.