Market control enables a firm to acquire monopoly profit for two key reasons.

• One, a firm that faces a negatively-sloped demand curve charges a higher price than a comparable perfectly competitive firm with no market control. The higher the price, the more likely it is to exceed average cost and thus to generate economic profit.


• Two, barriers to entry are one source of market control, especially for monopoly. Such barriers prevent new firms from entering the market in response to above-normal economic profit. Economic or monopoly profit is not eaten away by competition.

Monopoly Profit

A typical profit-maximizing output determination using the marginal revenue and marginal cost approach is presented in this exhibit. Feet-First Pharmaceutical maximizes profit by producing output that equates marginal revenue and marginal cost, which is 6 ounces of Amblathan-Plus in this example. The corresponding price charged is $7.50.

Because price is greater than average cost, Feet-First Pharmaceutical receives an economic profit, which by virtue of its monopoly market structure is monopoly profit. To highlight this profit, click the [Monopoly Profit] button.

The yellow rectangle, representing the difference between total cost and total revenue, is the monopoly profit received by Feet-First Pharmaceutical. This profit is determined in the following way:

• First, the total revenue received by Feet-First Pharmaceutical is equal to the $7.50 price times the 6 ounces of Amblathan-Plus sold, which is $45 (= 6 x $7.50).


• Second, the total cost incurred by Feet-First Pharmaceutical is equal to the $6.17 average total cost times the 6 ounces of Amblathan-Plus sold, which is $37 (= 6 x $6.17).


• Third, monopoly profit is the difference between total revenue and total cost, which is $8 = ($45 - $37).