monopoly is an enterprise that is the only seller of a good or service. In the absence of government

intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. Just being a monopoly need not make an enterprise more profitable than other enterprises that face COMPETITION: the market may be so small that it barely supports one enterprise. But if the monopoly is in fact more profitable than competitive enterprises, economists expect that other entrepreneurs will enter the business to capture some of the higher returns. If enough rivals enter, their competition will drive prices down and eliminate monopoly power.
Before and during the period of the classical economics (roughly 1776–1850), most people believed that this process of monopolies being eroded by new competitors was pervasive. The only monopolies that could persist, they thought, were those that got the government to exclude rivals. This belief was well expressed in an excellent article on monopoly in the Penny Cyclopedia (1839, vol. 15, p. 741):

Short Run Equilibrium of the Monopoly Firm:
In the short period, the monopolist behaves like any other firm. A monopolist will maximize profit or minimize losses by producing that output for which marginal cost (MC) equals marginal revenue (MR). Whether a profit or loss is made or not depends upon the relation between price and average total cost (ATC). It may be made clear here that a monopolist does not necessarily makes profit. He may earn super profit or normal profit or even produce at a loss in the short ran.

Conditions for the Equilibrium of a Monopoly Firm:
There are two basic conditions for the equilibrium of the monopoly firm. First Order Condition: MC = MR. Second Order Condition: MC curve cuts MR curve from below.


(a) Short Run Monopoly Equilibrium With Positive Profit: Revenue curves The downward sloping demand curve for the industry must also be the demand curve for the firm. This gives the monopolist the power to be a price maker, he can set the price and then sell whatever quantity consumers are willing to buy at that price. Rather than setting the price, he can set the quantity he wishes to sell and then accept the price the market is willing to pay. Ideally the monopolist would like to be able to sell a large quantity at a high price, however it can only set one or the other. It is because of this we say that the monopolist is constrained by the demand curve, as shown overleaf. The demand curve is relatively inelastic as there are no substitutes available.

Short run equilibrium There are three possible outcomes, abnormal profits, normal profits and losses. · Abnormal profits (AR>AC)


Normal profits (AR=AC)


Losses (AR less than AC).

Long run equilibrium If losses persist in the long run the monopolist will leave the market (unless it receives a subsidy or it has an objective other than making a profit). If abnormal or normal profits are being earned, the monopolist will remain in the market in the long run. Unlike perfect competition, it is possible to earn abnormal profits in the long run due to the presence of barriers to entry, which prevent firms entering the industry and eroding the profits. Dead Weight Loss


Normally, the price and quantity would be at the equilibrium point, where the supply(MC) and demand curve intersects. The price and quantity for a monopoly, however, are different. The price is higher, quantity is lower. Also, the actual price in the market is much higher than the price where MC=MR. Thus, economists would say that this kind of market is inefficient. Deadweight loss In economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium for a good or service is not Pareto optimal. In other words, either people who would have more marginal benefit than marginal cost are not buying the product, or people who have more marginal cost than marginal benefit are buying the product. Causes of deadweight loss can include monopoly pricing (in the case of artificial scarcity), externalities, taxes or subsidies, and binding price ceilings or floors. The term deadweight loss may also be referred to as the "excess burden" of monopoly or taxation. Types of Monopoly The different types of monopoly are as follows: 1. Private monopoly: The monopoly firm owned and operate by private individuals is called the private monopoly. Their main motive is to make profit. 2. Public monopoly: The monopoly firm owned and operated by public or state government is called public monopoly. It is also known as social monopoly. The entire operation is controlled either by central or state government. Their main motive is to provide welfare to the public. 3. Absolute monopoly: It is a type of monopoly, where a single seller controls the entire supply of market without facing competition. It is also known as pure monopoly. His product does not have even any remote substitute also. 4. Imperfect monopoly: It is a type of monopoly in which a single seller controls the entire supply of the market which does not have a close substitute. But there might be remote substitute for the product available in the market. 5. Simple or single monopoly: It is a type of monopoly in which a single seller controls the entire market, by selling the commodity at a single price for all the consumer. There is no price discrimination in the market. 6. Discriminative monopoly: When a monopoly firm changes different prices for the same goods or services to different consumers it is known as discriminative monopoly. 7. Legal monopoly: When a firms enjoys rights like trade mark, copy right, patent right, etc. then it is known as legal monopoly. Such monopoly rights are approved by the government. 8. Natural monopoly: When a firms enjoys monopoly right due to natural factors like location reputation earned etc, it is called as natural monopoly. Natural talent, skill of the producer also makes him to enjoy this right. 9. Technological monopoly: When a firm enjoys monopoly power due to technical superiority over other products in the market, then it is called as technological monopoly. For example products produced by L & T, Godrej etc. are technological monopoly. So by explaining technological monopoly and other monopolies we have finished with the full explanation of different types of monopoly. http://www.indiastudychannel.com/resources/106541-Types-Monopoly.aspx Classification / Kinds / Types of Monopoly 1. Perfect Monopoly It is also called as absolute monopoly. In this case, there is only a single seller of product having no close substitute; not even remote one. There is absolutely zero level of competition. Such monopoly is practically very rare. 2. Imperfect Monopoly 3

It is also called as relative monopoly or simple or limited monopoly. It refers to a single seller market having no close substitute. It means in this market, a product may have a remote substitute. So, there is fear of competition to some extent e.g. Mobile (Cellphone) telcom industry (e.g. vodaphone) is having competition from fixed landline phone service industry (e.g. BSNL). 3. Private Monopoly When production is owned, controlled and managed by the individual, or private body or private organization, it is called private monopoly. e.g. Tata, Reliance, Bajaj, etc. groups in India. Such type of monopoly is profit oriented. 4. Public Monopoly When production is owned, controlled and managed by government, it is called public monopoly. It is welfare and service oriented. So, it is also called as 'Welfare Monopoly' e.g. Railways, Defence, etc. 5. Simple Monopoly Simple monopoly firm charges a uniform price or single price to all the customers. He operates in a single market. 6. Discriminating Monopoly Such a monopoly firm charges different price to different customers for the same product. It prevails in more than one market. 7. Legal Monopoly When monopoly exists on account of trademarks, patents, copy rights, statutory regulation of government etc., it is called legal monopoly. Music industry is an example of legal monopoly. 8. Natural Monopoly It emerges as a result of natural advantages like good location, abundant mineral resources, etc. e.g. Gulf countries are having monopoly in crude oil exploration activities because of plenty of natural oil resources. 9. Technological Monopoly It emerges as a result of economies of large scale production, use of capital goods, new production methods, etc. E.g. engineering goods industry, automobile industry, software industry, etc. 10. Joint Monopoly A number of business firms acquire monopoly position through amalgamation, cartels, syndicates, etc, it becomes joint monopoly. e.g. Actually, pizza making firm and burger making firm are competitors of each other in fast food industry. But when they combine their business, that leads to reduction in competition. So they can enjoy monopoly power in market. http://kalyan-city.blogspot.com/2010/11/monopoly-market-structure-meaning.html


Sign up to vote on this title
UsefulNot useful