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

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 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.”

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 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
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 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.

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 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.
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 Business Mergers.
 TYPES OF MONOPOLY
 Natural monopoly,

 Geographic monopoly,

 Technological monopoly,

 Government monopoly,

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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

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TYPE OF BARRIERS TO ENTRY

 Strategic barriers to entry.

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

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 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.
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 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
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 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
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 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/

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