Monopoly:

A monopoly is an industry structure in which there is only one seller or one producer for a good or service. Whereas firms under perfect competition are price takers, monopoly firms are price makers- they set price to suit the firm's interests. The fundamental cause of monopoly is barriers to entry; monopolies are most likely to emerge when it is difficult or impossible for other firms to enter the market. Barriers to entry can be created when:

A key resource is owned by a single firm

The government, through patents, copyrights or licenses gives a single firm the exclusive right to produce a product or service.

Costs of production are such that one large firm can be more efficient than many small firms. This is called a natural monopoly.

A monopoly may raise its price, but it will lose sales. In order to sell more, it must lower its price. There are two effects on total revenue (profit * quantity):

Output effect - the firm gains more revenue because it sells more.

Price effect - the firm gains less revenue because it gets less from each unit sold because of the lower price.

Marginal revenue (MR) can even turn negative if price falls enough to reduce total revenue, even though the company sells more. The value of MR depends on whether the fall in price is larger than the increase in quantity. In other words, it depends on the elasticity of demand.

Therefore, the monopolist will never produce in the inelastic portion of the demand curve since MR is less than zero. A straight-line demand has elasticity that varies from zero to infinity. A monopolist maximizes profit when MR equals MC (and MC cuts MR from below). A monopolist will generally produce less than a socially efficient level of output, and charge too high a price. A monopoly can also practice price discrimination. Monopoly price discrimination increases the profits of the monopoly.