Explain the key characteristics of a monopoly.

Firstly, monopolists aim for profit maximisation. This is achieved by operating at an output level where marginal cost equals marginal revenue (MC=MR). However, contrary to other market structures, there are super normal profits in the long run as well as the short run (due to the position of average revenue being above average cost at profit maximisation). Super normal profits are when average cost is less than average revenue, hence this disparity (as economic profit also takes into account opportunity costs) causes profits that are higher than the level required to keep the firm in the marketplace. Furthermore, the industry is dominated by one single firm, who typically, in the real word, has 25%+ of the market share. There are also no substitutes for the product and hence no competition. This links back to the fact that there is one firm that dominates the market, therefore giving the firm price making power. Due to the development of the firm and the high levels of sunk costs, there are also high barriers to exit and entry.