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    Onopoly: Presented By: Submitted To

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    Simran Verma
    Monopoly is defined as a market situation where there is a single seller of a product without close substitutes. A monopoly is characterized by barriers to entry that restrict competition. A monopoly faces a downward sloping demand curve and is a price maker rather than price taker. In the short run, a monopoly may earn super normal profits, normal profits, or minimum losses depending on the relationship between marginal revenue, average costs, and marginal costs. In the long run, a monopoly earns super normal profits if price is above long run average costs.

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    Onopoly: Presented By: Submitted To

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    Simran Verma
    58 views21 pages
    Monopoly is defined as a market situation where there is a single seller of a product without close substitutes. A monopoly is characterized by barriers to entry that restrict competition. A monopoly faces a downward sloping demand curve and is a price maker rather than price taker. In the short run, a monopoly may earn super normal profits, normal profits, or minimum losses depending on the relationship between marginal revenue, average costs, and marginal costs. In the long run, a monopoly earns super normal profits if price is above long run average costs.

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    Monopoly is defined as a market situation where there is a single seller of a product without close substitutes. A monopoly is characterized by barriers to entry that restrict competition. A monopoly faces a downward sloping demand curve and is a price maker rather than price taker. In the short run, a monopoly may earn super normal profits, normal profits, or minimum losses depending on the relationship between marginal revenue, average costs, and marginal costs. In the long run, a monopoly earns super normal profits if price is above long run average costs.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    58 views21 pages

    Onopoly: Presented By: Submitted To

    Uploaded by

    Simran Verma
    Monopoly is defined as a market situation where there is a single seller of a product without close substitutes. A monopoly is characterized by barriers to entry that restrict competition. A monopoly faces a downward sloping demand curve and is a price maker rather than price taker. In the short run, a monopoly may earn super normal profits, normal profits, or minimum losses depending on the relationship between marginal revenue, average costs, and marginal costs. In the long run, a monopoly earns super normal profits if price is above long run average costs.

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    You are on page 1of 21

    MONOPOLY

    Presented By :
    Submitted To : Anuj Kr.Sharma
    Dr. Ashish Pareek Brajesh Rawat
    Dumpy S. Chauhan
    Prateek S.Rathore
    Sachin Kheradiya
    Tarun S. Gahlot
    MONOPOLY
     The Word Monopoly is a Latin Term. „Mono‟ means
    Single and „Poly‟ means Seller.

     Monopoly is a form of Market Organization in which


    there is only One Seller of the Commodity.

     There are No Close Substitutes for the


    Commodity sold by the Seller.

     Example : Indian Railways


    2
    DEFINITIONS
     According To Koutsoyiannis ,
    “Monopoly Is a Market Situation in Which There is A
    single Seller, There are no close substitutes for commodity it
    produces ,there are barriers to entry.”

     According To Baumol ,
    “ A pure Monopoly is defined as the firm that is also an
    industry. It is the only supplier of some particular commodity
    for which there exist no close substitutes.”

    3
     True monopolies generally exist in government
    controlled markets.
     Ex. : Indian railway

     Monopoly in private business is rare.


     Private firms who have considerable market
    share.
    Like : Google
    Microsoft
    Apple
    4
    FEATURES OR ASSUMPTIONS OF MONOPOLY
     One seller and large number of Buyers.

     Monopoly is also an Industry.

     Restrictions on the Entry of the New Firms.

     No close Substitutes.

     Price Maker.

     Price Discrimination.

     Downward Sloping Demand Curve.


    5
    CAUSES AND SOURCES OF MONOPOLY POWER
     Control over Raw Materials or Ownership of Natural Resources.

     Patents.

     Technical Barriers.

     Government Policy.

     Historical and Entry Lag.

     Limit-Pricing Policy or Unfair Competition.

     Capital Size.
    6

     Business Mergers.
    TYPES OF MONOPOLY
     Natural monopoly,

     Geographic monopoly,

     Technological monopoly,

     Government monopoly,

    7
    TYPE OF BARRIERS TO ENTRY

     Institutional barriers to entry.


     Exclusive franchising
     Licences
     Patent protection

     Technical barriers to entry.


     Unique resources
     Economies of scale and scope
     Economy of experiences

    8
    TYPE OF BARRIERS TO ENTRY

     Strategic barriers to entry.


     Limit pricing
     Excess capacity
     Product differentiation (brand
    proliferation)

    9
    MONOPOLY
    V/S
    PERFECT COMPETITION

    Perfect competitive Firm Monopoly


    Is one of many producers  Is the sole producer

    Has a horizontal demand  Hasa downward-sloping


    curve demand curve

    Is a price taker  Is a price maker

    Sellsas much or as little  Reduces price to 10


    at same price increase sales
    (A)Perfect competitive (b) A Monopolist’s
    Firm Demand Curve
    Price Price

    Demand

    Demand

    0 Quantity of 0 Quantity of
    Output Output 11
    DEMAND AND REVENUE UNDER
    MONOPOLY

     In a monopoly situation, there is no difference between firm &


    industry.
     Under monopoly situation, firm‟s demand curve also
    constitutes industry‟s demand curve.
     Demand curve of the monopolist is also average revenue
    curve.
     It slopes downward. It means if the monopolist fixes high
    price, the demand will shrink or decrease. On the contrary, if
    he fixes low price, the demand will expand or increase.
     Under monopoly, average revenue and marginal revenue
    curves are separate from one another. Both slope downwards.
     Fig.1 will show average revenue (demand) curve & marginal
    revenue curve. Both are sloping downward. Marginal revenue
    curve is below average revenue or demand curve.
    12
    DEMAND AND REVENUE UNDER
    MONOPOLY
    Y

    A
     Demand curve of the
    monopolist is also average E > 1 Increase In TR

    revenue (ARC) curve. It

    Revenue
    E=1 (TR Maximum)
    L
    slopes downward. It means P
    N
    if the monopolist fixes high E<1 (Decrease inTR)
    price, the demand will
    shrink. D = Average Revenue
    O Marginal revenue X
    Q OUTPUT

     Demand rises with fall in price(AR)


     At point „N‟ , total revenue will be maximum.( i.e. ,TR = P x Q)
     Average revenue is never zero, but marginal revenue may be
    zero or even negative
     At OP price, the monopolist will produce OQ quantity of
    output, because this price affords him maximum total revenue. 13
    PRICE DETERMINATION UNDER SHORT RUN

    A Monopolist in Equlibrium may face any of Three


    Situations in the Short period .

    1. Super Normal Profit

    2. Normal Profit

    3. Minimum Loss
    14
    SUPER NORMAL PROFIT
     In This Figure ,The
    Y
    Monopolist is in
    MC
    equilibrium at point E .
    AC
     Because at this point
    MC=MR . C
    A

     The Monopolist Produces D B


    OM Units & sell it at AM
    price E
     Thus in this Situation the AR
    super normal profit of the
    monopolist will be ABCD
    MR
    OUTPUT
    X
    O M 15
    NORMAL PROFIT
     In This Figure ,The Firm is in Y MC
    equilibrium at point E .
     Where MC=MR & OM is the
    equilibrium output . AC

     At this output AC Curve P


    A
    Touches Average
    Revenue(AM) curve at point
    A.
     At point „A‟ price OP (AM) is E
    equal to the average Cost of AR
    the product .
     Therefore firms earn only
    normal profit in equilibrium MR
    situation as at equilibrium X
    output its AC=AR O M OUTPUT
    16
    MINIMUM LOSS
     In this Figure , The monopolist Y
    is in equilibrium at point E ,
    Where MC=MR & produces MC
    OM output. AC
     The price of equilibrium output
    OM is fixed at OP1 (AM). P
    N
     At this Price The Average Loss A
    P1
    Variable Cost(AVC) Curve AVC
    Touches AR curve at point „A‟.
    E
     At this situation the firm will
    get only AVC from the
    Prevailing Price
    AR
     .The firm will bear the loss of
    fixed cost , AN per Unit. MR X
    O
    M OUTPUT

    The firm will bear total loss equivalent to NAP1P as shown 17

    by the shaded area.


    PRICE DETERMINATION UNDER LONG RUN
     In the Figure ,Point E Indicates
    the equilibrium of the
    monopolist . Y
     At Point E, MR = LMC . Hence
    OM is the equilibrium Output &
    ON (=AM) is the equilibrium
    Price.BM is the long run A LAC
    N LMC
    average cost. P B
     Price (Average Revenue ) AM
    is being more than long run
    average cost (AR > LAC), the E AR
    Monopolist earn (AM –BM
    =AB) Super Normal Profit Per
    Unit.
    MR
     The Firm‟s Super Normal Profit O M OUTPUT X
    will be ABPN as Shown by 18
    Shaded Area
     BOOKS :
     MICRO ECONOMICS .
     T.R. Jain

     O.P. Khanna

     Ajay Tiwari

     INTERNET :
    www.slideshare.net/

    19
    20
    21

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