ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How Do Equilibrium Condition is Determined in Monopoly Market?(Short-run and Long-run Equilibrium)

Updated on May 9, 2015
icv profile image

IRSHAD CV has been a student in Economics. Now he is doing Masters in Economics. He completed B.A. Economics from the University of Calicut.


Monopoly is the market, where the commodities are supplied by a single firm or producer. And large numbers of buyers bring in to contact him to purchase the commodity. The ultimate aim of a monopoly firm is to make maximum profit. So, the monopolist may impose any price, he like. Further the monopolist may charge different prices for different consumers for the same commodity. Here this hub is very briefly described, how the equilibrium condition is determined in a monopoly market. On the basis of the time, equilibrium determination can be classified in to two. They are

1) Short run equilibrium

2) Long run equilibrium

Short Run Equilibrium of Monopolist

Even though the ultimate aim of the monopolist is to make maximum profit, the monopolist cannot determine both the market price and the quantity he decides to sell. The monopolist can produce output for which the price accepted by the customers. Or the monopolist can fix price, but it may not demanded by the market. Short run equilibrium of monopolist can be represented as in the Figure I. At equilibrium, the following two conditions must satisfy.

1) Marginal Cost (MC) curve must cut Marginal Revenue (MR) from below.

2) Marginal Cost (MC) must be equal to Marginal Revenue (MR).

In the Figure I, the two equilibrium conditions are satisfied.

1) Marginal Cost (MC) curve cut Marginal Revenue (MR) curve from below.

2) Marginal Cost (MC) equals to Marginal Revenue (MR) curve

Further ‘R’ is the point demand curve tangent. And ‘P’ is the price of the commodity. Here the monopolist can earn an excess profit equals to the shaded area ‘PQRS’, because Average Total Cost (ATC) passes through the point ‘S’ and price is above that point. So, the monopolist can earn excess profit.

Long Run Equilibrium of Monopolist

In the long run, the monopoly firm can change both the variable and fixed costs like labor, land and building etc. with respect to the changes in demand for the commodity. The monopolist can use the plant either optimum level or a partial level. It depends on the super normal profit earned by the firm. The monopolist can fix price since new entries of firms are blocked. So, cost is not a challenge for monopolist. In short a monopolist can survive in the economy by producing commodity at different costs. On the basis of the costs incurred for the monopoly firm, the long run equilibrium determination can be explained in three methods as listed below.

1) Sub optimal scale, here the cost is not minimal and the capacity of firm is used less

2) Surpass optimal scale, here the cost is not minimal and capacity of the firm is over utilized.

3) Optimal scale, here the cost is minimal and the firm’s capacity is used well.

Each of these cases is very briefly and separately described below.

1) Suboptimal Scale with Under Utilization of Capacity

In a small monopoly market, the monopolist never uses his maximum capacity of the firm or plant limited demand. So, monopolist never produces his output with least cost. But he can earn profit, because he is the price maker in the market. It can be described with Figure II shown below.

In the Figure II, Marginal Cost (MC) curve cut Marginal Revenue (MR) from below and equilibrium is determined at point Marginal Cost (MC) equal to Marginal Revenue (MR). it tangent the demand curve at point ‘Q’ and so price will be equal to the point ‘P’ and quantity will be ‘X’ on x axis. The area ‘PQRS’ will be the profit of monopolist.

Here another thing is also noted that, Long run Average Cost (LAC) is not in its minimum. The monopolist chooses point ‘S’ (falling part of LAC). Actually the monopolist can produce more until the cost reaches to the point ‘K’, where he can produce with minimum cost. So, monopolist works in a suboptimal scale and will not use their maximum capacity.

2) Surpass Optimal Scale with Over Utilization

It is a system workable when the market condition of monopolist is very large. So, the demand will be higher. To meet this heavy demand, monopolist wanted to produce more even at a higher (not minimum). It can be understand with the help of the Figure III showing below.

In the Figure III, Marginal Cost (MC) cut Marginal Revenue (MR) from below and MC equals MR at point ‘E’. The area ‘PQRS’ will be the profit of monopolist. Long run Average Cost (LAC) is the cost of firm which is determined at the raising part of LAC. This shows that the cost of monopolist is not minimum.

3) Optimal Scale with Efficient Utilization of the Capacity

Actually this case is workable when the monopolist deal with a just large, but not big market. Here the monopolist uses his optimum capacity. So, cost of production will be very less. It can be explained as shown in the Figure IV.

In the Figure IV, Marginal Cost (MC) Marginal Revenue (MR) from below and MC equals MR at point ‘E’. Demand is tangent at point ‘Q’ and price will be at ‘P’. Here the Long run Average Cost (LAC) is determined at its minimum point, meaning that cost is minimum and so, the monopolist can use their optimal capacity.


    0 of 8192 characters used
    Post Comment

    No comments yet.


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)