MONOPOLY MARKET EXPLANATION

1. MONOPOLY

2. Monopoly is a market situation where there is
only a single seller
with complete control over an industry.
Monopolies exist because of barriers to entry
into a market
prevent competition.
Monopoly

3. Feature of Monopoly:
• Single Seller : In a monopoly market, usually there is a
single firm which produces and supplies a particular product
or commodity.
• Monopoly is also an industry : There is a single seller or
producer of a particular product, and there is no difference
between firm and the industry. The firm is itself an industry.
• The firms can influence the price of a product and hence,
these are price maker.
• No close substitutes: The goods produced by the
monopolist have no close substitutes.

4. • There are barriers to entry of other firms in the area of
monopoly.
• Monopoly firm faces downward sloping demand curve. It
mean the firm can increases his sales by lowering price
and vice versa.
• A monopolist firm enjoy the freedom to follow price
discrimination.
• In monopoly there are no
competitors .

5. • Their r Numerous Factors Which Give Rise To Monopoly power Here Are some of
them
• Natural Monopoly
• A Firm that Confronts Economies of Scale over the entire range of outputs
demanded in its industry is a Natural Monopoly
• Utilities that distribute electricity, water and natural gas to some markets are
some examples of natural monopoly
• Geographic Monopoly :
• Some monopolies are due to nature supply of Natural Resources like gold or
crude oil are confined to certain geographical area .
• Geographical monopoly is when only one business provides products or services
to a local area, that business is a geographic monopoly.
Sources OF Monopoly Power

6. • Technological Monopoly
• Technology developed by the business firms or nations give them a monopoly
right over such a good or service.
• A monopoly that occurs when a single firmControls manufacturing methods
necessary to produce a certain product, or has exclusive rights over the technology
used to manufacture it example inTransport,Communication.
• Legal Protection
• A legal Monopoly is Protected by law fromCompetition Legal Protections are
granted by the Government .
• For examples Patent rights,Trade Marks, Copy rights
•
• These rights give monopoly powers to the person and firm who have introduced
such commodities.

7. • Barriers to New Competition
• Barriers to entry are the legal, technological or market forces that discourage
or prevent potentialCompetitors from entering a Market.
• Barriers to entry can range from simple and easily such as the cost of renting
retail space, to the extremely restrictive.
• Cartel Formation
• A cartel is an organisation created from a formalAgreement between a group
of Produces of a good or service to regulate Supply.
• In other words a cartel is a collection of otherwise independent business or
countries that act together as if they were a single producer and third ca fix prices
for the goods they Produce .
• Example:TheOrganisationOf Petroleum exportingCountries (OPEC)

8. Types of
monopoly
. Private monopoly
.public monopoly
.legal monopoly
.Natural monopoly
.simple monopoly

9. 1.Stability of prices
In a monopoly market structure, the prices are pretty stable.
This is because there is only one firm involved in the market
that sets the prices since there is no competing product.
2. Economies of Scale
Since there is a single seller in the market, it leads to
economies of scale because of large-scale production
which lowers the cost per unit for the seller. The seller
may pass this benefit down to the consumer in terms
of a lower price

10. Disadvantages of a Monopoly
: 1. Higher Prices
The monopolist could set a very high price for the product leading to the
exploitation of consumers as they have no option but to buy it from the seller due
to the lack of competition in the market.
2. Price Discrimination
Monopolists can sometimes use price discrimination, where they charge different
prices on the same product for different consumers. This depends on market
conditions:
3. Inferior Goods and Services
The lack of competition may cause the monopoly firm to produce inferior goods
and services because they know the goods will sell.

11. Equilibrium Of Monopoly Firm In Short Run
A monopolist, as discussed earlier can control both price and output. However,
being a rational producer who aims at maximisation of profit will not control both at
the same time. He will decide his output by applying the equilibrium conditions,
that is, at point E, where MC cuts MR from below.
Excess Profit
Inn the short run a monopolist due to his monopoly power earns excess profit but
need not necessarily so always. Since the demand depends on the market it is
likely, that a monopolist may even incur loss. Firgure 14.2 Explains the case of
excess profit in the short run

13. Loss
A monopolist in spite of his monopoly power is not guaranteed excess profit in the
short run. It is likely he may even functionn with loss. As in perfect competion
thhhe cost of the monopoly firm is also divided into fixed and variable cost. It is
essenntial to cover the variable cost to enable the firm to function.vFig 14.3
explains the case of loss:

14. Perfect
competition
and
Monopoly
Comparison

15. PERFECT COMPETITION
• Number of sellers and buyers are large.
• The commodity is homogeneous.
• Nature of price is uniform.
• Firm’s demand curve is perfectly elastic .
• Slope of firms demand curve is horizontal
straight line (AR=MR).
• Level of profit in long run is normal (AR=AC).
• Equilibrium is possible only under increasing
cost.
MONOPOLY
• Number of buyers are large but only one seller
is there.
• The commodity is homogeneous or
differentiated.
• Nature of price is not uniform because of price
differentiation.
• It is relatively less elastic .
• Demand curve slopes downward with low
elasticity (AR>MR).
• Level of profit in long run is extra normal
profits (AR>AC).
• Equilibrium is possible under all cost
conditions – increasing , constant and
decreasing.

16. DEMAND CURVE OF PERFECT COMPETITION AND MONOPOLY
demand
price
Quantity
price
demand
Quantity
P1
P
Q Q1

17. CONCLUSION
• A Monopoly is a firm that is
the sole seller in its market
.
• It faces a downward sloping
demand curve for its
product .
• Like a competitive firm , a
monopoly maximize profit
by producing the quantity at
which marginal cost and
marginal revenue are equal
.
• Unlike a competitive firm ,
its price exceeds its