Main Market Forms and Equilibrium of a Firm | ISC Class 12 Economics Notes

This note covers the meaning and defining features of perfect competition, monopolistic competition, oligopoly, monopoly and monopsony; the revenue concepts of a firm; the three conditions for profit-maximising equilibrium under perfect competition; the short-run equilibrium of a firm with its shut-down point and break-even point; and the long-run equilibrium of a firm under perfect competition.

What is a market and what distinguishes one market form from another?

In economics, a market is not a physical place but an arrangement through which buyers and sellers of a good come into contact and exchange it at a mutually agreed price.

The term market form (also called market structure) refers to the way a market is organised, based mainly on the number of firms, the nature of the product sold and the ease with which new firms can enter or leave the industry.

What decides a firm's control over price?

These three factors together decide how much control an individual firm has over the price it charges.

At one extreme, a firm may have no control at all over price and must simply accept the price set by the market; at the other extreme, a firm may be the only seller and can itself choose the price.

Between these extremes lie market forms in which a firm has some, but not complete, control over price. The main market forms studied are perfect competition, monopolistic competition, oligopoly, monopoly and monopsony.

The first four are classified mainly by the number of sellers and the nature of the product; monopsony is classified by the number of buyers rather than sellers.

What are the features of perfect competition?

A perfectly competitive market has the following defining features. First, the market consists of a large number of buyers and sellers, so that no individual buyer or seller is large enough, relative to the whole market, to influence the market price by their own actions.

Second, each firm produces and sells a homogeneous product: the product of one firm cannot be differentiated from the product of any other firm, so a buyer gets the same good whichever firm she buys from.

Third, there is free entry and exit of firms into and out of the market; this freedom is essential for the large number of firms to exist, because if entry were difficult the number of firms would stay small.

Fourth, information is perfect: all buyers and sellers are completely informed about the price, quality and other relevant details of the product and the market.

These features together produce the single most distinguishing feature of perfect competition: price-taking behaviour. A price-taking firm believes that if it sets a price above the market price it will be unable to sell any quantity at all, because buyers, who are perfectly informed, will simply buy the identical good from another firm; the many other firms readily absorb the switching buyers without any adjustment problem.

If the firm sets a price at or below the market price, it can sell as many units as it wants.

A price-taking buyer similarly believes that asking for a price below the market price will leave no seller willing to sell to her, while at or above the market price she can buy as many units as she desires.

What are the merits and limitations of the perfect competition model?

The merits of using perfect competition as a benchmark model are that it shows the lowest possible price and the largest possible output that a market of a given size can deliver, since no firm earns more than normal profit in the long run and no resources are wasted on selling costs such as advertising.

It also gives a clear, simple framework in which price equals marginal cost, so that the welfare of buyers and sellers can be analysed without the complication of a firm having independent power to set price.

The limitations are that its assumptions are rarely met exactly in the real world: truly homogeneous products, a very large number of firms, completely free entry and exit, and perfect information are difficult to find together in any actual market.

Real markets usually show some degree of product differentiation, some barriers to entry, or some buyers and sellers who are large enough to influence price, so perfect competition is best treated as an idealised benchmark rather than a description of most actual markets.

What is monopoly and what are its main features?

Definition: Monopoly. A market form in which there is only a single seller of a good that has no close substitutes, so that the firm and the industry are effectively the same thing.

Features of monopoly

Under monopoly, the single firm is a price maker rather than a price taker, because the whole market demand curve faces this one firm: the firm's demand curve and the market demand curve are identical.

Entry into the industry is blocked by strong barriers, such as control over a key input, legal restrictions, large economies of scale, or ownership of a patent, so new firms cannot compete the firm's profits away even in the long run.

Because the firm faces the whole downward-sloping market demand curve, its average revenue curve is downward sloping (unlike the horizontal price line of a competitive firm), and the firm's marginal revenue lies below its average revenue at every output level.

The monopolist can therefore earn supernormal profit even in the long run, since blocked entry prevents new firms from competing it away.

What is monopolistic competition and what are its main features?

Definition: Monopolistic competition. A market form with a large number of sellers, each selling a differentiated version of a broadly similar product, with relatively free entry and exit.

Features of monopolistic competition

Under monopolistic competition, there are many sellers, as in perfect competition, but the product of each firm is slightly different from that of its rivals through product differentiation, achieved by branding, packaging, quality, location or after-sales service.

Because buyers have some preference for a particular firm's version of the good, each firm has limited control over the price of its own product and faces a downward-sloping, but fairly flat (highly elastic), demand curve rather than a horizontal one.

Entry into and exit from the industry are comparatively easy, which tends to keep profits close to normal in the long run, as new firms are attracted in by any supernormal profit until it disappears.

A notable feature of this market form is the significant use of selling costs, such as advertising and sales promotion, which firms use to build brand loyalty and distinguish their product from rivals' products; such selling costs are largely absent in perfect competition.

What is oligopoly and what are its main features?

Definition: Oligopoly. A market form with only a few large sellers, whose decisions on price, output or advertising are interdependent.

Features of oligopoly

Under oligopoly, a small number of large firms dominate the market, so that each firm's actions have a noticeable effect on its rivals, and each firm must take account of how rivals are likely to react before setting its own price or output.

This mutual dependence is called interdependence and is the defining feature of the market form; it is absent under perfect competition, monopolistic competition and monopoly, where a firm does not need to consider a specific rival's reaction.

The product sold may be homogeneous (pure oligopoly, as with cement or steel) or differentiated (differentiated oligopoly, as with cars or soft drinks).

Entry is restricted by significant barriers, such as high set-up costs or brand loyalty built by established firms.

Why is the oligopoly demand curve indeterminate?

Because of interdependence, the demand curve facing an individual firm cannot be drawn with certainty, since it depends on how rivals respond to the firm's own price changes; this uncertainty is why the demand curve under oligopoly is often described as indeterminate.

Firms frequently prefer non-price competition, such as advertising or product improvement, over price-cutting, since a price cut invites retaliation from rivals.

What is monopsony?

Definition: Monopsony. A market form in which there is only a single buyer facing many sellers of a good or a factor of production.

How does a monopsony differ from a monopoly?

A monopsony is, in a sense, the mirror image of a monopoly: instead of a single seller facing many buyers, there is a single buyer facing many sellers.

Because the many sellers have no alternative buyer to approach, the single buyer gains market power over the price at which it purchases the good or factor, and can influence the price downwards by varying the quantity it chooses to buy, just as a monopolist influences the selling price by varying the quantity it supplies.

A commonly cited example is a single large employer in a small town being the only buyer of a particular type of labour in that local market.

How are total, average and marginal revenue defined for a firm?

A firm earns revenue by selling the good it produces. Let p denote the market price of a unit of the good and q the quantity sold by the firm at that price. Total revenue is the market price multiplied by the firm's output: TR = p × q.

For a price-taking firm under perfect competition, average revenue, defined as total revenue per unit of output, works out to AR = TR ÷ q = p × q ÷ q, so that AR = p: average revenue equals the market price at every output level.

Plotting the market price against output gives a horizontal straight line called the price line, which is also the firm's AR curve and the demand curve it faces; this demand curve is perfectly elastic, meaning the firm can sell as much as it wants at price p but nothing above it.

Marginal revenue is the increase in total revenue from selling one more unit of output. For a price-taking firm, marginal revenue works out to be the same as the market price, so MR = p: when output rises by one unit, that extra unit is sold at the market price, so the increase in total revenue from the one-unit expansion is precisely the market price. In general, MR = ΔTR ÷ Δq, the change in total revenue divided by the change in quantity.

Putting these together, MR = AR = p for a price-taking firm. This equality of MR, AR and price is unique to perfect competition; under monopoly, monopolistic competition and oligopoly, where the firm's demand curve is downward sloping, marginal revenue lies below average revenue.

What conditions must hold for a firm to maximise profit under perfect competition?

A firm's profit, usually denoted by the Greek letter π, is the difference between its total revenue and its total cost: π = TR − TC. A profit-maximising firm chooses the output level at which this gap is largest. Three conditions must hold together at that output level: the first two are general, and the third takes a different form in the short run and the long run.

1. Price must equal marginal cost (p = MC). As long as marginal revenue exceeds marginal cost, producing one more unit adds more to revenue than to cost, so profit keeps rising; as long as marginal cost exceeds marginal revenue, profit falls. Profit is therefore maximum where MR = MC, and since MR = p for a price-taking firm, this becomes p = MC.
2. Marginal cost must not be falling at that output. If price equals marginal cost at a point where the marginal cost curve is still sloping downwards, output just below that point would have price exceeding marginal cost, which would raise profit further, so that point cannot be the profit-maximising one.
3. In the short run, price must be at least equal to average variable cost (p ≥ AVC). If price were below AVC, the firm would lose more from producing (because revenue would not even cover variable costs) than it would lose by shutting down and producing nothing, so it would choose to produce zero output instead.
4. In the long run, price must be at least equal to average cost (p ≥ AC). If price were below long-run average cost, the firm would make a loss on every unit produced; since a firm that shuts down earns zero profit in the long run (it has no fixed costs to cover), the firm exits the industry rather than produce at a loss.

How is the short-run equilibrium of a firm under perfect competition shown, including the shut-down and break-even points?

At the given market price p, the firm equates p with its short-run marginal cost (SMC) on the rising part of the SMC curve to find its profit-maximising output, q0.

At this output, provided SMC is rising and price is at least equal to average variable cost, all three profit-maximising conditions are satisfied.

The vertical axis shows price and cost; the horizontal axis shows output.

A horizontal price line at height p cuts the rising part of the short-run marginal cost (SMC) curve at output q0; the short-run average cost (SAC) curve and the average variable cost (AVC) curve are also drawn, both U-shaped, with SMC cutting each of them at its lowest point.

Total revenue at q0 is the area of the rectangle formed by price and output; total cost at q0 is the area of the rectangle formed by SAC and output; the difference between these two rectangles is the firm's profit.

If price exceeds SAC at q0, the firm earns supernormal profit, shown by the rectangle between the price line and the SAC curve at q0; if price is less than SAC but still at least equal to AVC, the firm makes a loss smaller than its fixed cost and still prefers to produce rather than shut down, since producing lets it recover part of its fixed cost.

The shut-down point is the lowest point on the firm's short-run supply curve at which it still produces a positive output: it is the point where the rising part of the SMC curve cuts the AVC curve, that is, the minimum point of the AVC curve.

Below the price corresponding to this point, the firm's revenue would not even cover its variable costs, so it produces zero output and limits its loss to its fixed cost alone.

The break-even point is the point on the supply curve at which the firm earns only normal profit, the minimum profit needed to keep the firm in the existing business (normal profit is treated as part of the firm's costs, an opportunity cost of entrepreneurship).

In the short run, this is the point where the SMC curve cuts the SAC curve, that is, the minimum point of the SAC curve. Any profit earned above normal profit is called supernormal profit.

How is the long-run equilibrium of a firm under perfect competition different from the short run?

The analysis in the long run follows the same logic as the short run, but with long-run marginal cost (LRMC) and long-run average cost (LRAC) in place of their short-run counterparts, and without a separate fixed cost, since all costs are variable in the long run.

The firm equates the market price with LRMC on the rising part of the LRMC curve to find its profit-maximising output; this output satisfies the profit-maximising conditions provided LRMC is rising and price is at least equal to LRAC.

The long-run condition that replaces the short-run AVC condition is that price must be at least equal to LRAC, because a firm that shuts down in the long run earns zero profit (there is no fixed cost left to cover by producing a loss-making output), so any output at which price is below LRAC is worse than shutting down.

Consequently, in the long run, the shut-down point and the break-even point coincide at the minimum point of the LRAC curve, where the LRMC curve cuts the LRAC curve.

Because entry and exit of firms are free in a perfectly competitive market, the long run behaves differently from the short run in one important way: if existing firms are earning supernormal profit, new firms are drawn into the industry by that profit, which increases total output and pushes the market price down; if firms are making losses, some firms exit, reducing total output and pushing the price up.

This movement continues until price settles at the minimum point of the LRAC curve, where every firm earns only normal profit, that is, the break-even point.

Perfect competition is therefore the only one of the market forms studied in which free entry and exit drive long-run profit down to the normal level for every firm in the industry.

How do the market forms compare with each other?

The five market forms differ mainly in the number of sellers (or, for monopsony, buyers), the nature of the product, the ease of entry and exit, and the resulting control a firm has over price. The table below summarises these differences.

A second useful comparison is the revenue values in a simple numerical illustration from a competitive market for candles in India, where the market price of a box is fixed at ₹10.

Worked example 1. In the competitive market for candles above, the market price of a box is ₹10. Find the total revenue (TR) earned by the firm from selling 3 boxes and from selling 4 boxes.

Answer: TR = p × q. At 3 boxes, TR = ₹10 × 3 = ₹30. At 4 boxes, TR = ₹10 × 4 = ₹40. Both figures match the table, confirming that TR rises by exactly the price (₹10) for each extra box sold.

Worked example 2. Using the same table, find the marginal revenue (MR) of moving from 2 boxes sold (TR = ₹20) to 3 boxes sold (TR = ₹30).

Answer: MR = change in total revenue ÷ change in quantity = (₹30 − ₹20) ÷ (3 − 2) = ₹10 ÷ 1 = ₹10. This equals the market price, confirming that MR = AR = p for a price-taking firm under perfect competition.

A third illustration uses the total revenue (TR) and total cost (TC) of a competitive firm in India at each output level, to locate the output at which profit is highest.

Worked example 3. A competitive firm in India has the total revenue (TR) and total cost (TC) schedule shown above. Find the market price implied by the schedule, calculate the profit at each output level, and state the profit-maximising output.

Answer: since TR = p × q, and TR = 5 when q = 1, the market price is p = TR ÷ q = ₹5 ÷ 1 = ₹5; this is confirmed at q = 3, where TR = ₹15 = ₹5 × 3. Profit = TR − TC at each output: 0 → −₹5, 1 → −₹2, 2 → ₹0, 3 → ₹3, 4 → ₹5, 5 → ₹2, 6 → −₹3, 7 → −₹5. Profit is highest, at ₹5, when the firm sells 4 units, so q = 4 is the profit-maximising output.

A fourth illustration uses a different total cost (TC) schedule at a market price of ₹10 per unit, to show the same procedure with a larger range of outputs.

Worked example 4. A competitive firm sells at a fixed market price of ₹10 per unit. Using the TC values above, find the profit at outputs 5 and 6, and state which of these two gives the higher profit.

Answer: at output 5, TR = ₹10 × 5 = ₹50, so profit = ₹50 − ₹38 = ₹12. At output 6, TR = ₹10 × 6 = ₹60, so profit = ₹60 − ₹49 = ₹11. Since ₹12 is greater than ₹11, output 5 gives the higher profit of the two, consistent with the profit-maximising condition that price should equal marginal cost at the chosen output.

Price and cost are on the vertical axis, output on the horizontal axis.

The SMC curve rises after an initial dip, cutting the U-shaped AVC curve at its minimum point; the firm's short-run supply curve is the part of the SMC curve from this minimum-AVC point upwards, together with zero output at every price below it, drawn as a bold line.

Glossary

• Market form — the way a market is organised, based on the number of firms, the nature of the product and the ease of entry and exit.
• Perfect competition — a market form with a very large number of buyers and sellers of a homogeneous product, free entry and exit, and perfect information.
• Price taker — a firm (or buyer) that accepts the market price as given and cannot influence it by its own actions.
• Price maker — a firm that can itself influence the price it charges because it faces a downward-sloping demand curve.
• Homogeneous product — a good that is identical whichever firm supplies it, so buyers cannot tell one firm's output from another's.
• Product differentiation — making a firm's version of a good appear distinct from rivals' versions through branding, quality or packaging.
• Price line — the horizontal line showing a price-taking firm's average revenue, equal to the fixed market price at every output.
• Total revenue — the market price of a good multiplied by the quantity sold by the firm.
• Marginal revenue — the increase in total revenue from selling one additional unit of output.
• Normal profit — the minimum profit needed to keep a firm in its existing business, treated as part of its costs.
• Supernormal profit — profit earned over and above normal profit.
• Shut-down point — the lowest point on a firm's supply curve at which it still produces a positive output, below which it produces nothing.
• Break-even point — the point on a firm's supply curve at which it earns only normal profit.
• Interdependence — the situation under oligopoly where each firm's decisions affect, and are affected by, rivals' decisions.
• Selling costs — expenditure, such as advertising, incurred by a firm to promote and differentiate its product.

Common errors and misconceptions

• Misconception: A perfectly competitive firm can sell more by charging a slightly lower price than its rivals. Correct: It can sell as much as it wants at the market price already; lowering price below that only reduces its revenue, since it could already sell its entire output at the market price.
• Misconception: Marginal revenue equals average revenue in every market form. Correct: MR = AR = p holds only under perfect competition; wherever the firm's demand curve slopes downward, as under monopoly, monopolistic competition and oligopoly, MR lies below AR.
• Misconception: A firm that is making a loss always shuts down immediately. Correct: In the short run, a loss-making firm keeps producing as long as price is at least equal to average variable cost, because producing lets it recover part of its fixed cost.
• Misconception: The shut-down point and the break-even point are the same point. Correct: The shut-down point is where price equals the minimum AVC (short run); the break-even point is where price equals the minimum AC, a higher price level at which only normal profit is earned.
• Misconception: Monopsony refers to a single seller. Correct: Monopsony refers to a single buyer facing many sellers; a single seller facing many buyers is a monopoly.
• Misconception: Oligopoly always means firms sell identical products. Correct: Oligopoly may involve a homogeneous product (pure oligopoly) or a differentiated product (differentiated oligopoly); its defining feature is the small number of interdependent sellers, not product uniformity.
• Misconception: In the long run under perfect competition, firms can keep earning supernormal profit if their costs are low enough. Correct: Free entry draws in new firms wherever supernormal profit exists, pushing the market price down until every firm earns only normal profit at the break-even point.

Exam-style questions with model answers

Q1. State any two features of a monopoly market. [2 marks]

1. There is only a single seller of the good, and the firm and the industry are effectively the same.
2. Entry of new firms is blocked by strong barriers, such as patents or control over a key input, so the firm can earn supernormal profit even in the long run.

Q2. State the meaning of monopsony. [2 marks]

1. Monopsony is a market form with only a single buyer facing many sellers of a good or a factor of production.
2. Because sellers have no alternative buyer, the single buyer gains power to influence the purchase price downwards by varying the quantity it chooses to buy.

Q3. Distinguish between monopolistic competition and oligopoly on the basis of the number of sellers, the nature of the product and control over price. [4 marks]

1. Number of sellers: monopolistic competition has a large number of sellers, while oligopoly has only a few large sellers.
2. Nature of product: under monopolistic competition the product is differentiated through branding or quality; under oligopoly the product may be homogeneous (pure oligopoly) or differentiated (differentiated oligopoly).
3. Control over price: a monopolistically competitive firm has limited control, mainly over its own differentiated version of the good, and ignores individual rivals' reactions; an oligopolist has significant control but must consider how specific rivals will react to its price changes, because of interdependence.
4. Entry and exit: entry is relatively free under monopolistic competition but restricted by barriers under oligopoly, so oligopoly firms are better placed to sustain supernormal profit in the long run.

Q4. A firm operating in a perfectly competitive market sells its product at the prevailing market price of ₹20 per unit. Explain, using the concept of price-taking behaviour, why this firm's average revenue and marginal revenue are both equal to ₹20. [4 marks]

1. The firm is a price taker: it believes that setting a price above ₹20 would leave it unable to sell anything, since buyers are perfectly informed and would simply buy the identical good from another firm.
2. At or below ₹20 it can sell as much as it wants, so there is never a reason to charge less than ₹20; it therefore always sells at exactly the market price.
3. Average revenue is total revenue divided by output: AR = (p × q) ÷ q = p = ₹20, so average revenue equals the market price at every output level.
4. Marginal revenue is the extra revenue from one more unit; since every unit, including the last one, is sold at the same ₹20, the extra revenue from the last unit is also ₹20, so MR = AR = ₹20.

Q5. Why is the demand curve facing a firm under perfect competition perfectly elastic, while the demand curve facing a monopolist is downward sloping? [3 marks]

1. Under perfect competition, the product is homogeneous and buyers are perfectly informed, so a firm that charges even slightly more than the market price loses all its buyers to rival firms selling the identical good.
2. At or below the market price, the firm can sell as much as it wishes, because the many other firms and buyers readily absorb any quantity; this gives a horizontal, perfectly elastic demand curve at the market price.
3. A monopolist is the only seller of a good with no close substitutes, so it faces the entire market demand curve directly; as it raises price, some buyers reduce their purchases rather than switching to a rival (since none exists), giving a downward-sloping, less than perfectly elastic demand curve.

Q6. With the help of a diagram, explain the short-run equilibrium of a firm under perfect competition, including its shut-down point and break-even point. [6 marks]

1. The firm chooses the output at which the given market price, p, equals short-run marginal cost (SMC) on the rising part of the SMC curve; this output, q0, maximises profit provided SMC is rising and p is at least equal to average variable cost (AVC).
2. In the diagram, price and cost are measured on the vertical axis and output on the horizontal axis; a horizontal price line at height p cuts the rising SMC curve at q0, with the SAC and AVC curves also drawn.
3. Total revenue at q0 is the rectangle formed by price multiplied by output; total cost at q0 is the rectangle formed by short-run average cost (SAC) multiplied by output.
4. If price exceeds SAC at q0, the gap between these two rectangles is supernormal profit; if price is below SAC but still at least equal to AVC, the firm makes a loss smaller than its fixed cost and keeps producing rather than shutting down.
5. The shut-down point is the minimum point of the AVC curve, where the rising SMC curve cuts AVC; below the corresponding price, revenue would not cover variable costs, so the firm produces zero output.
6. The break-even point is the minimum point of the SAC curve, where SMC cuts SAC; at this point the firm earns exactly normal profit, with no supernormal profit or loss.

Q7. Explain the three conditions that must be satisfied for a firm under perfect competition to be in profit-maximising equilibrium in the short run. [4 marks]

1. Price must equal short-run marginal cost (p = SMC): since MR = p for a price-taking firm, profit rises as long as MR exceeds MC and falls once MC exceeds MR, so profit is greatest exactly where the two are equal.
2. SMC must not be falling at that output: if it were still falling, a slightly smaller output would give a higher profit, so that point cannot be the maximum.
3. Price must be at least equal to average variable cost (p ≥ AVC): if price fell short of AVC, producing would cost the firm more in variable costs than it earns in revenue, so it is better off producing nothing and losing only its fixed cost.
4. Together, these three conditions pick out a unique output, q0, where the firm earns the highest profit it can in the short run, which may be a supernormal profit, a normal profit, or a loss smaller than its fixed cost.

Key takeaways

• Market forms differ by the number of sellers, the nature of the product, and the ease of entry and exit, which together decide a firm's control over price.
• Perfect competition has a very large number of sellers, a homogeneous product, free entry and exit, and perfect information, making every firm a price taker.
• For a price-taking firm, AR = MR = market price, so its demand curve is the horizontal price line.
• A monopoly has a single seller with blocked entry and faces the whole downward-sloping market demand curve as its own.
• Monopolistic competition has many sellers of a differentiated product, relatively free entry and exit, and significant selling costs.
• Oligopoly has a few large, interdependent sellers whose demand curve is indeterminate because each depends on rivals' reactions.
• Monopsony has a single buyer facing many sellers, giving the buyer power over the purchase price.
• A profit-maximising firm under perfect competition sets price equal to marginal cost, with marginal cost rising, and price at least equal to AVC in the short run or AC in the long run.
• The shut-down point is the minimum of the AVC curve; the break-even point is the minimum of the AC curve, where only normal profit is earned.
• Free entry and exit push a perfectly competitive firm's long-run price to the minimum of LRAC, leaving only normal profit.

Test yourself

What is the single most distinguishing feature of a firm under perfect competition?

Price-taking behaviour: the firm accepts the market price as given and believes it can sell any quantity at that price but nothing above it.

Why does a monopolist's marginal revenue lie below its average revenue?

Because the monopolist faces a downward-sloping demand curve, selling one more unit requires lowering the price on all units sold, so the extra revenue from the last unit is less than the average price.

What distinguishes oligopoly from monopolistic competition?

Oligopoly has only a few large, interdependent sellers who must consider rivals' reactions, while monopolistic competition has many sellers who each ignore any single rival's reaction.

At which point does a firm's short-run supply curve begin?

At the shut-down point, the minimum point of the AVC curve where the rising SMC curve cuts AVC; below this, output is zero.

What is earned by a firm exactly at its break-even point?

Only normal profit, the minimum profit needed to keep the firm in its existing business, with no supernormal profit and no loss.

Why does long-run equilibrium under perfect competition settle at the minimum of LRAC?

Free entry and exit let new firms enter when profit is supernormal, lowering price, and let firms exit when there are losses, raising price, until price equals the minimum of LRAC everywhere.

How is a monopsony different from a monopoly?

A monopsony has a single buyer facing many sellers and gains power over the purchase price, while a monopoly has a single seller facing many buyers and gains power over the selling price.