Pinnacle

Academ

Subject : Economics

Submitted by : Submitted to :
Suraj lama R.N Sir
 UNDER MONOPOLY
Monopoly is a market structure in which there is a single
producer or a seller of a product and there is no close
substitute for this product in the market.

Features of Monopoly
1. Monopoly firm is called price maker.
2. Large number of buyers and single seller.
3. Strong barrier to enter the new firms into industry.
4. The objective of firms is profit maximization.
5. Monopoly uses the policy of price discrimination.
For equilibrium of a firm two conditions should be
statisfied :
I. MC=MR
II. MC should cut MR from bottom.
Firm may be equilibrium in short run with :
I. Loss
II. Abnormal Profit
III. Normal profit
The figure of short run equilibrium is shown in the following
next page :
 1) Loss

MC
AC

AR
MR

Fig : (I)
In the above figure (I), MR represents Marginal Revenue, AR
represents Average Revenue, AC and MC means Average
cost and Marginal cost respectively.
In the figure (I) the shaded part is the loss, where the
unshaded part is the revenue of the product. Therefore, the
figure (I) shows the loss.
2. Abnormal Profit
 MC AC

AR
MR

Fig : (II)
In above figure (II), MR represents Marginal revenue, AR
represents Average revenue, AC and MC represents Average
cost and Marginal cost respectively.
In the figure (II) shaded part is the abnormal profit where the
unshaded id the revenue of the product. The figure (II) shows
the abnormal profit.
3. Normal Profit
 MC
AC

AR

MR

Fig : (III)
In the above figure (III), MR represents Marginal revenue,
AR represents Average revenue, AC and MC represents
Average cost and Marginal cost respectively.
In the figure (III) it represents the normal profit. It’s less
profitable than the abnormal profit but it will last for the long
being.