Monopoly profit is an inflated level of profit due to the monopolistic practices of an enterprise.
Basic classical and neoclassical theory
Traditional economics state that in a competitive market, no firm can command elevated premiums for the price of goods and services as a result of sufficient competition. In contrast, insufficient competition can provide a producer with disproportionate pricing power. Withholding production to drive prices higher produces additional profit, which is called monopoly profits.
According to classical and neoclassical economic thought, firms in a perfectly competitive market are price takers because no firm can charge a price that is different from the equilibrium price set within the entire industry's perfectly competitive market. Since a competitive market has many competing firms, a customer can buy widgets from any of the competing firms. Because of this tight competition, competing firms in a market each have their own horizontal demand curve that is fixed at a single price established by market equilibrium for the entire industry as a whole. A significant rise in a product's price tends to cause customers to switch from this good to a lower priced close substitute. In some cases, firms that produce differing but similar goods have similar production processes, which makes it relatively easy for one-good firms to switch their manufacturing processes to produce a different but similar good.[[File:Competitive market diagram.svg|thumb|right|upright=3.0|Individual competitive firms (on the extreme left and extreme right) are price takers, who are forced to accept the overall equilibrium price set by total consumer demand and the quantity all firms supply within the industry's market. The industry's market supply and demand show a graphical depiction of the interaction between all suppliers of the product and all consumers who may wish to purchase the product, and the decisions they make at any possible price. Various barriers to entry include patent rights New firms would be reticent to enter a product market if an apparent slim economic profit can turn into an immediate economic loss for all firms upon a new entry.