... products at a lower price than their smaller competitors. Monopolies also use predatory pricing to force smaller companies out of the business - i.e. they reduce their prices even if they make a loss in the short term but increase them as soon as the competitors leave. There are also high sunk costs of entering the monopoly market - for instance if a company were to compete with Microsoft they would have to invest heavily into advertising etc. All monopolies try to maximize their profits but unlike perfect competition they are able to set their output where Marginal Cost = Marginal Revenue rather when Marginal Cost = Demand. Hence supernormal profits are created. This can be seen in Figure 1. Figure 1: Monopoly with a linear demand curve. Monopolies can also use monopoly power to use markup pricing. As long as there is a constant elasticity demand curve a monopoly will ...

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