Final Monopoly ME

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MembersMembers

Name Roll No.

Krishnakant Mishra 73

Rohan Haldankar 66

Naresh Sirsulla 103Ashwini Patankar 83

Vasim Momin 76

Name Roll No.

Krishnakant Mishra 73

Rohan Haldankar 66

Naresh Sirsulla 103Ashwini Patankar 83

Vasim Momin 76


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ContentContent

Introduction Types of Monopoly Power

Features Monopoly Power

Sources of Monopoly Power

Equilibrium of Monopoly Firm

Comparison Between Perfect Competition &Monopoly

Advantages & Disadvantages Wastage Under Monopolistic Competition

Conclusion


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1. Mono one

2. poly - organization (Indianapolis)

3. A Monopoly is the sole supplier of a product with

no close substitutes

4. The most important characteristic of a

monopolized market is barriers to entry

New firms cannot profitably enter the market

What is Monopoly ?


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INTRODUCTIONINTRODUCTION

Monopoly is another form of market where there is

only one seller. In a pure or absolute monopoly amonopolist controls the entire supply of commodity

for which there is no substitute at all.

A Monopolist can control both the supply and price.

In Monopoly Market a Monopolist is a price makerand not a price taker like the perfectly competitive

firm.


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Types of Monopoly PowerTypes of Monopoly Power Pure Monopoly: It means single firm which solely controls the supply of a

commodity, there is no competition and he can charge any price for hisproducts, it also known as absolute monopoly

Limited Monopoly: limited monopoly means a single firm which controls thesupply of the commodity having no close substitutes but there are remotesubstitutes, he can influence the price and demand for his product is relativeinelastic.

Private monopolies: are owned and controlled by private individuals. They areprofit motivated.

Public Monopolies: are owned and controlled by the government. e.g.-Railways

owned by the government. Simple Monopoly: A simple Monopoly firm charges a uniform price to all buyers of

its product. it operates in a single market.

Discriminating Monopoly: A Discriminating monopoly firm charges differentprices from different buyers for the same product. It prevails in more than onemarket.

A strong Monopolist: Is confident and optimistic, he charges his own price for hisproducts with ought any fear for strong entry barriers for competition, no govt.intervention.

A weak Monopolist: Lacks confidence and is pessimistic as there is fear ofcompetition ,Govt. intervention and adverse reaction of consumers, so he chargesless prices for his products.


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Monopoly in Public SectorMonopoly in Public Sector

In India, Public utility service

supplied by the government arethe closest examples of Monopoly

BEST BUSES

RAILWAY

S


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Monopoly in Food ItemsMonopoly in Food Items

Canteen in Schools Snacks in Theatre


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Monopoly in Power or EnergyMonopoly in Power or Energy

GAS CYLINDER ELECTRICITY


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FEATURES OF MONOPOLYFEATURES OF MONOPOLY

Single Seller :There are no competitors. He is the soleseller. A monopolist is not threatened by any competitor.

NoCloseSubstitutes :The commodity sold byMonopolist has no close substitute

Cont..


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No entry : To monopoly market entry is completelyrestricted. if entry is allowed or anybody succeeds to

enter the market and produce a close substitute the

monopolist will be no more a monopolist.

No distinction between firm and industry : A

monopolist being the sole seller constitutes the firm

as well as the industry. therefore there is no need for aseparate discussion of equilibrium of industry.


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Price Maker: A Monopolist is price maker and not aprice taker. He can fix his own price policy tomaximize more profit.

Absence of competition: There is no competition for

a monopolists product as he is the only seller rulingthe market.

Control over entire market supply: A monopolisthas complete control over the market supply as he is

the single producer. He can fix up the price of hisproduct depending upon the demand position for theproduct in market.



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Sources of Monopoly PowerSources of Monopoly Power

Natural Resource: Some monopolies are due to nature.For E.g. Gold and Crude Oil, Kesar etc.

Control of Raw Materials: when a firm has ownership or

control over essential raw materials, entry of firms is

restricted and it acquires monopoly power.For e.g.-Jute in Bangladesh.

Legal Protection : Legal Protection granted by the

Govt. in the form of

E.g.. Patent rights ,Trademarks ,Copyrights, License etc.

Cont..


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Business Reputation: Reputed firms acquire

monopoly power as they have no financialdifficulties and they do not require extra efforts toattract the customers.

Economies of large scale: Big and old firms enjoythe benefits of large scale production they havehuge capital, technology, and can produce goods atlow cost and supply at low prices which may conferthem monopoly power.

Creation of artificial barriers to new competition:

Firm may adopt tactics like heavy advertising, limitpricing policy etc. to reduce new entry andcompetition to establish a monopolistic position.

Sources of Monopoly PowerSources of Monopoly Power


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Comparison Between Perfect Competition andMonopoly

Comparison Between Perfect Competition andMonopoly

Characteristics Perfect Competition Monopoly

No. of Sellers Very Large Single

Commodity Homogeneous Homogeneous/ Differentiated

Market Position Price Taker Price Maker

Nature of Demand Perfectly elastic(Horizontal Line)

Less elastic(Downward Sloping)

AR and MR AR = MR AR > MR.

Production Optimum. Usually less than optimum.

Optimum production is possible ifdemand increases.

Long-run profit Normal Excess

Nature of Price Single price. Price Discrimination.


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WASTAGE UNDER MONOPOLISTIC COMPETITIONWASTAGE UNDER MONOPOLISTIC COMPETITION

1. Excess Capacity : Monopolistically competitive firm do not

produce optimum Output. Free Entry attracts many firmscompelling each firm to share the market with others.

2. Unemployment : Excess Capacity Results in Unutilizedresources which prevents providing more Employment.

3. Cross Transport : Product differentiation leads to the

demand for a variety of same good. This could be avoidedif the product produce in a particular area is sold thereitself and consumers are satisfied with the varietiesavailable in their locality.

4. Wastage of Resources : Product differentiation by itself

results in wastages of resources. Different colors anddesigns leads to wastage of resources which could havebeen used for other purposes.


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ADVANTAGE OF MONOPOLYDVANTAGE OF MONOPOLY

No risk of over production

There is enough capital for research

Reduction in price of goods

Efficiently use of resources


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DISADVANTAGES OFMONOPOLY

DISADVANTAGES OFMONOPOLY

Exploitation of consumers

Restriction of consumers choice

Absence of competition leads to inefficiency

Increase in price of product

Exploitation of labor i.e. when price is

greater than marginal cost.


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Average andMarginal

Revenue Under

Monopoly


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Revenues for a firm facing a downward-slopingdemand curve



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AR d MR f fi f i d d l i DAR d MR f fi f i d d l i D


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-2

0

2

4

6

8

1 2 3 4 5 6 7

ARand MRcurves for a firm facing a downward-sloping D curveARand MRcurves for a firm facing a downward-sloping D curve

Q

(units)

1

23

4

5

6

7

P

=AR

()8

76

5

4

3

2

ARAR,M

R()

Quantity



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-2

0

2

4

6

8

1 2 3 4 5 6 7

Q

(units)

1

23

4

5

6

7

P

=AR

()8

76

5

4

3

2

TR

()

8

1418

20

20

18

14

MR

()

64

2

0

-2

-4

MR

AR,M

R()

Quantity


AR



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-2

0

2

4

6

8

1 2 3 4 5 6 7

Elasticity = -1

Elastic

Inelastic

AR,M

R()

Quantity


MR

AR


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SHORT RUN EQUILIBRIUMSHORT RUN EQUILIBRIUM

Profit in

Short-Run

Equilibrium

Loss in

Short-Run

Equilibrium

PROFIT IN SHORT RUN CASE


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6.00

4.50

0

4

8

12

16

1 2 3 4 5 6 7

T O T A L P R O F I TT O T A L P R O F I T

MR

Quantity

Costsa

ndRevenue

()

MC

AC

AR

ba

PROFIT IN SHORT RUN CASEPROFIT IN SHORT RUN CASE

Total Profit =

1.50 x 3 = 4.50


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QO

MR

P1

SAVC

AR = D

LOSS IN SHORT- RUN CASELOSS IN SHORT- RUN CASE

MCSAV

L

P

T

S

M

ECosta

ndR

evenue

LOSS


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LONG-RUN EQUILIBRIUMLONG-RUN EQUILIBRIUMProfit of a Monopolist


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CONCLUSIONCONCLUSION

Pure monopoly is rare but many firms have monopoly

power.

The Monopoly can take the market demand curve as its

own demand. A monopolist there for Faces a

downward sloping AR curve with MR curve.

Competition increases social welfare, but monopoly

is always bad!


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Final Monopoly ME