monopoly market structure
DESCRIPTION
what is monopoly, its characteristics, probable cause & equilibrium price and output in short n long run. u can mail me ur views on [email protected]TRANSCRIPT
![Page 1: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/1.jpg)
04/10/2023 continued... 1
ImperfectCompetition
MONOPOLY
Rajesh KumarPGP-I
MBA-ABMCABM,GBPUA&T
![Page 2: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/2.jpg)
04
/10
/20
23
2
contin
ued...
IMPERFECT COMPETITION
An imperfectly competitive industry is an industry in which single firms have some control over the price of their output.
Some examples are Monopoly, Oligopoly and Monopolistic competition.
Monopoly:- A market structure in which only one producer or seller exists for a product that has no close substitutes
![Page 3: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/3.jpg)
04/10/2023continued... 3
The characteristics of Monopoly are
Single SellerNo Close SubstitutesPrice MakerBlocked EntryNon-price Competition Availability of information(Imperfect)
![Page 4: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/4.jpg)
04/10/2023continued... 4
Monopolies exist because of barriers to entry into a market that prevent competition.
ex:-railways, electricity.
There are three general classes of barriers to entry(CAUSE):◦Natural barriers, the most common being
economies of scale◦Actions by firms to keep other firms out◦Government (legal) barriers
MONOPOLY
![Page 5: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/5.jpg)
04/10/2023continued... 5
In some industries, the larger the scale of production, the lower the costs of production.
Entrants are not usually able to enter the market assured of or capable of a very large volume of production and sales.
This gives incumbent firms a significant advantage.
Examples are electric power companies and other similar utility providers.
Economies of Scale
![Page 6: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/6.jpg)
04/10/2023continued... 6
Governments often provide barriers, creating monopolies.
As incentives to innovation, governments often grant patents, providing firms with legal monopolies on their products or the use of their inventions or discoveries for a period of 17 years.
Government
![Page 7: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/7.jpg)
04/10/2023continued... 7
Natural monopoly: A monopoly that arises from economies of scale. The economies of scale arise from natural supply and demand conditions, and not from government actions.
Local monopoly: a monopoly that exists in a limited geographic area.
Bilateral Monopoly: only one buyer, very rare ex; expensive defence goods-govt.is single buyer. Regulated monopoly: a monopoly firm whose
behavior is overseen by a government entity. Monopolization: an attempt by a firm to
dominate a market or become a monopoly.
Types of Monopolies
![Page 8: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/8.jpg)
04/10/2023 continued... 8
Monopoly: Equilibrium
y = Q
P
MR Demand
![Page 9: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/9.jpg)
04/10/2023 continued... 9
Monopoly: Equilibrium
y
P
MC
MR Demand
![Page 10: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/10.jpg)
04/10/2023 continued... 10
Monopoly: Equilibrium
y
PAC
MC
MR Demand
![Page 11: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/11.jpg)
04/10/2023 continued... 11
Monopoly: Equilibrium
y
PAC
MC
MR
Output Decision
MC = MR
ym Demand
![Page 12: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/12.jpg)
04/10/2023 continued... 12
Monopoly: Equilibrium
y
PAC
MC
MR Demand
Pm = the price
ym
Pm
![Page 13: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/13.jpg)
04/10/2023continued...
13
Monopoly: Equilibrium
Firm = MarketShort run equilibrium diagram = long run
equilibrium diagram (apart from shape of cost curves)
At qm: pm > AC therefore you have excess (abnormal, supernormal) profits
Short run losses are also possible
![Page 14: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/14.jpg)
04/10/2023 continued... 14
Monopoly: Equilibrium
y
PAC
MC
MR Demand
The shaded area is the excess profit
ym
Pm
![Page 15: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/15.jpg)
04/10/2023continued... 15
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
PROFIT-MAXIMIZING CASE:
A firm in the short run earns maximum profit when it meets the following conditions;
◦ MR = MC and MC curve cuts MR from below
◦ Average Revenue is greater than Average Total Cost.
![Page 16: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/16.jpg)
04/10/2023 continued... 16
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
MC
ATC
AR
MR
Output
Revenue/Cost
Profit
0
AVC
PROFIT-MAXIMIZING CASE:
P
E
![Page 17: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/17.jpg)
04/10/2023 continued... 17
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
NORMAL PROFIT CASE:
A firm in the short run earns normal profit when it meets the following conditions;
MR = MC and MC curve cuts MR from below
Average Revenue is equal to Average Total Cost.
![Page 18: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/18.jpg)
04/10/2023 continued... 18
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
MC
ATC
AR
MR
Output
Revenue/Cost
0
AVC
NORMALPROFIT CASE:
P
E
![Page 19: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/19.jpg)
04/10/2023 continued... 19
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
LOSS-MINIMIZING CASE:
A firm in the short run minimize loss in following way;
MR = MC and MC curve cuts MR from below
Average Revenue is less than Average Total Cost but greater than AVC.
![Page 20: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/20.jpg)
04/10/2023 continued... 20
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
MC
ATC
AR
MR
Output
Revenue/Cost
0
AVC
LOSS-MINIMIZING CASE:
P
E
Loss
![Page 21: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/21.jpg)
04/10/2023continued... 21
A monopoly firm will be in equilibrium in long run and will earn Economic profit if;
◦ MC = MR and MC cuts MR curve from below◦ AR is greater than Average Cost and ◦ There is no threat of new entry into the market
If there is threat of new entry so monopolist will reduce prices and will earn only normal profit.
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN LONG RUN
![Page 22: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/22.jpg)
04/10/2023 continued... 22
EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN LONG RUN
MC
ATC
AR
MR
Output
Revenue/Cost
Profit
0
AVCP
E
![Page 23: Monopoly Market Structure](https://reader035.vdocuments.net/reader035/viewer/2022081414/54be85834a7959fc738b458f/html5/thumbnails/23.jpg)
04/10/2023 continued... 23
• thank-you…….• have a nice day.