PRICE AND OUTPUT DETERMINATION UNDER MONOPOLY
MICRO ECONOMICS/BUSINESS ECONOMICS
MEANING
1.
IN MONOPOLY THERE IS SINGLE SELLER FOR WHICH THERE IS NO CLOSE SUBSTITUTES.
2.
MONOPOLY IS A MARKET SITUATION IN WHICH THERE IS A SINGLE SELLER,THERE ARE
NO CLOSE SUBSTITUTE FOR COMMODITY IT PRODUCES,THERE ARE BARRIER TO ENTRY.
3.
NO DIFFERENCE BETWEEN FIRM AND INDUSTRY.
4.
MONOPOLIST IS THE PRICE MAKER.
5.
DEMAND CURVE SLOPES DOWNWARD TO THE RIGHT.
DEFINITION
KOUTSOYIANNIS,” MONOPOLY IS A MARKET SITUATION
IN WHICH THERE IS A SINGLE SELLER,THERE ARE NO CLOSE SUBSTITUTE FOR COMMODITY
IT PRODUCES THERE ARE BARRIER TO ENTRY.
FEATURES
1.
ONE SELLER AND LARGE NUMBER OF BUYERS
2.
RESTRICTIONS ON THE ENTRY OF NEW FIRMS
3.
MONOPOLY IS ALSO AN INDUSTRY.NO DIFFERENCE BETWEEN FIRM AND INDUSTRY
4.
NO CLOSE SUBSTITUTE
5.
PRICE MAKER:-PRICE OF THE COMMODITY IS FULLY UNDER HIS CONTROL
6.
PRICE DISCRIMINATION:
7.
RESTRICTION ON THE ENTRY OF NEW FIRMS
·
CAUSES
1.
CONTROL OVER RAW MATERIALS
2.
PATENTS
3.
TECHNICAL BARRIERS
4.
GOVERNMENT POLICY
5.
ENTRY LAG
6.
UNFAIR COMPETITION
7.
CAPITAL SIZE
8.
BUSINESS MERGERS
SHAPE OF CURVES
COST CURVE AC.MC AND AVC ARE U SHAPED
DETERMINANT OF PRICE AND
TOTAL REVENUE AND TOTAL COST ANALYSIS
EXPLANATION
MONOPOLIST CAN EARN MAXIMUM PROFIT BY SELLING
THAT AMOUNT AT WHICH DIFFERENCE BETWEEN TOTAL REVENUE AND TOTAL COST IS
MAXIMUM. THAT AMOUNT OF OUTPUT AT WHICH A MONOPOLIST EARNS MAXIMUM PROFIT WILL
BE CONSTITUTE HIS EQUILIBRIUM POSITION
MARGINAL REVENUE AND MARGINAL COST ANALYSIS
SHORT RUN
SHORT RUN REFERS TO THE PERIOD IN WHICH TIME IS
SO SHORT THAT A MONOPOLIST CANNOT CHANGE FIXED FACTORS LIKE MACHINERY,PLANT ETC
A MONOPOLIST WILL BE IN EQUILIBRIUM WHEN HE
PRODUCES THAT AMOUNT OF OUTPUT AT WHICH
1.
MARGINAL COST IS EQUAL TO MARGINAL REVENUE
2.
MC CUTS MR FROM BELOW
THE MONOPOLIST IS IN EQUILIBRIUM AND HE FACES
FOLLOWING ANY OF THREE SITUATIONS:_
1.
SUPER NORMAL PROFIT
2.
NORMAL PROFIT
3.
MINIMUM LOSS
SUPER NORMAL PROFIT
AT EQUILIBRIUM OUT PUT HIS AR IS MORE THAN AC
HE WILL HAVE SNP
NORMAL PROFIT
AT THE EQUILIBRIUM OUTPUT IF AR=AC THEN FIRM
EARNS NORMAL PROFIT.
MINIMUM
LOSSES AR IS LESS THAN AC
LONG RUN EQUILIBIRIUM
IN THE LONG RUM,THE MONOPOLIST WILL BE IN EQUILIBRIUM AT A POINT WHERE THE LONG RUN MARGINAL COST IS EQUAL TO MARGINAL
REVENUE AND LMC CUTS MR FROM BELOW.
IN THE LONG RUM THE MONOPOLIST WILL FIX THE
PRICE IN SUCH A WAY AS TO EARN SUPER NORMAL PROFIT
LONG RUN EQUILIBIRIUM
AT EQUILIBRIUM OUT PUT HIS AR IS MORE THAN AC
HE WILL HAVE SNP
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