Monopoly Equilibriums

When discussing the idea of monopolies and oligopolies, it becomes very clear that these firms price their goods significantly higher than where they need to and where the public wants the price. This concept brings up the idea of what is morally right vs. what is economically right for the firms at play. Obviously, as the consumers, we want the price to be as low as possible because we all hate overspending on a product that simply does not need to be that expensive. Thus, we have three "equilibrium" points, and each point benefits some group.

The first equilibrium point is the one that benefits the monopoly. It is the point that we all know best because it is where MC = MR, and you slide up to the demand curve. This price, which clearly covers total costs and then some, is where the monopoly can get away with pricing the good because nobody else has the rights to sell this good. Because they are the sole producers, they are able to price their good at a very expensive amount. This price hurts the consumers as well as the government because the price is very high and the monopoly continues to grow and expand.

The second point is where the demand intersects with ATC. This is known as the "break-even" point. At this point, it is the breakeven point for the monopoly. While this price does not necessarily hurt the firm, they have no economic profit, and they could be making more money. On the contrary, the consumers are slightly happier because the price is dropping. The government is very happy because the monopoly is acting as if it is a pure competition market, and the company does not need subsidies nor will it grow too large.

The final equilibrium point is where the firm is pricing at the socially optimal point, or where it is allocative efficient. At this point, where demand is equal to MC, the consumers are getting the product at the price they want, so the consumer benefits the most at this equilibrium point. However, the monopoly is now pricing at a point that is below ATC, so they are losing money in the long run and will be unable to maintain this market plan. As a result, since they are the only firm producing this good, the government must provide subsidies to that company or they will go bankrupt. In short, the government isn't happy, the monopoly isn't happy, but the consumers are very satisfied.