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Members

Name Roll No.


Krishnakant Mishra 73
Rohan Haldankar 66
Naresh Sirsulla 103
Ashwini Patankar 83
Vasim Momin 76
Content

 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
What is Monopoly ?

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
INTRODUCTION

Monopoly is another form of market where there is


only one seller. In a pure or absolute monopoly a
monopolist 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 maker


and not a price taker like the perfectly competitive
firm.
Types 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 his
products, it also known as absolute monopoly
✂ Limited Monopoly: limited monopoly means a single firm which controls the
supply of the commodity having no close substitutes but there are remote
substitutes, he can influence the price and demand for his product is relative
inelastic.
✂ Private monopolies: are owned and controlled by private individuals. They are
profit 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 different
prices from different buyers for the same product. It prevails in more than one
market.
✂ A strong Monopolist: Is confident and optimistic, he charges his own price for his
products 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 of
competition ,Govt. intervention and adverse reaction of consumers, so he charges
less prices for his products.
Monopoly in Public Sector

In India, Public utility service RAILWAY


supplied by the government are S
the closest examples of Monopoly

BEST BUSES
Monopoly in Food Items

Canteen in Schools Snacks in Theatre


Monopoly in Power or Energy
GAS CYLINDER ELECTRICITY
FEATURES OF MONOPOLY

 Single Seller : There are no competitors. He is the sole


seller. A monopolist is not threatened by any competitor.

 No
Close Substitutes : The commodity sold by
Monopolist has no close substitute

Cont..
FEATURES OF MONOPOLY
No entry : To monopoly market entry is completely
restricted. 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 a
separate discussion of equilibrium of industry.
FEATURES OF MONOPOLY
 Price Maker: A Monopolist is price maker and not a
price taker. He can fix his own price policy to
maximize more profit.
 Absence of competition: There is no competition for
a monopolist’s product as he is the only seller ruling
the market.
 Control over entire market supply: A monopolist
has complete control over the market supply as he is
the single producer. He can fix up the price of his
product depending upon the demand position for the
product in market.
Sources 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..
Sources of Monopoly Power
 Business Reputation: Reputed firms acquire
monopoly power as they have no financial
difficulties and they do not require extra efforts to
attract the customers.
 Economies of large scale: Big and old firms enjoy
the benefits of large scale production they have
huge capital, technology, and can produce goods at
low cost and supply at low prices which may confer
them monopoly power.
 Creation of artificial barriers to new competition:
Firm may adopt tactics like heavy advertising, limit
pricing policy etc. to reduce new entry and
competition to establish a monopolistic position.
Comparison Between Perfect Competition and
Monopoly
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 Less elastic


(Horizontal Line) (Downward Sloping)

AR and MR AR = MR AR > MR.

Production Optimum. Usually less than optimum.


Optimum production is possible if
demand increases.

Long-run profit Normal Excess

Nature of Price Single price. Price Discrimination.


WASTAGE UNDER MONOPOLISTIC COMPETITION

1. Excess Capacity : Monopolistically competitive firm do not


produce optimum Output. Free Entry attracts many firms
compelling each firm to share the market with others.
2. Unemployment : Excess Capacity Results in Unutilized
resources which prevents providing more Employment.
3. Cross Transport : Product differentiation leads to the
demand for a variety of same good. This could be avoided
if the product produce in a particular area is sold there
itself and consumers are satisfied with the varieties
available in their locality.
4. Wastage of Resources : Product differentiation by itself
results in wastages of resources. Different colors and
designs leads to wastage of resources which could have
been used for other purposes.
ADVANTAGE OF MONOPOLY

 No risk of over production

 There is enough capital for research

 Reduction in price of goods

 Efficiently use of resources


DISADVANTAGES OF
MONOPOLY
 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.
Average and
Marginal
Revenue Under
Monopoly
Revenues for a firm facing a downward-sloping
demand curve
Revenues for a firm facing a downward-sloping
demand curve
Revenues for a firm facing a downward-sloping
demand curve
AR and MR curves for a firm facing a downward-sloping D curve
Q P
8 (units) =AR
1 (£)
8
2 7
3 6
6
4 5
5 4
AR, MR (£)

6 3
7 2
4

AR
2

Quantity
0
1 2 3 4 5 6 7

-2
AR and MR curves for a firm facing a downward-sloping D curve
Q P TR MR
8 (units) =AR (£) (£)
1 (£)
8 8
6
2 7 14
4
3 6 18
6 5 2
4 20
0
5 4 20
-2
AR, MR (£)

6 3 18
-4
7 2 14
4

AR
2

Quantity
0
1 2 3 4 5 6 7

-2 MR
AR and MR curves for a firm facing a downward-sloping D curve

8
Elastic
Elasticity = -1
6
AR, MR (£)

Inelastic
4

AR
2

Quantity
0
1 2 3 4 5 6 7

-2 MR
SHORT – RUN EQUILIBRIUM

Profit in Loss in
Short-Run Short-Run
Equilibrium Equilibrium
PROFIT IN SHORT RUN CASE
16 MC
Total Profit =
£1.50 x 3 = £4.50
12
Costs and Revenue (£)

AC
a
8
6.00
TOTAL PROFIT b
4.50

4 AR

Quantity
0 MR
1 2 3 4 5 6 7
LOSS IN SHORT- RUN CASE

£ MC
SAV

SAVC
Cost and Revenue

L T
LOSS S
P
P1 M

E
AR = D

MR
O Q
LONG-RUN EQUILIBRIUM
Profit of a Monopolist
CONCLUSION

 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!