E class of Economics sponsored by CCE 13.12.

2019

Dr. M. R. Singariya
Associate Professor
Department of Economics
S. D. Government College Beawar
A single firm selling a commodity for
which no close substitutes.
Firm is industry and faces negatively
sloped industry demand curve for
the commodity
Only one seller & Sufficient buyers
No close substitute goods
Entry of new firm is not possible due to
scientific or other reasons
Perfect competition in factor marker
Ratio of supply by the monopoly firm and
the total market supply.

Lerner - α = [P-MC]/P
If P = MR = MC, α = 0
P > MR, α = +ve
 Inelastic demand
Minimum no. 0f firms
A monopolist firm use to buy factors of
production from perfect competition .
Price Quantity TR AR MR

8 0 0 - -

7 1 7 7 7

6 2 12 6 5

5 3 15 5 3

4 4 16 4 1

3 5 15 3 -1

2 6 12 2 -3

1 7 7 1 -5

0 8 0 0 -7
 The output at which
either total profits are
maximized or total
loses minimized
 The shape of TR curve
is inverted U
 The level of output at
which the monopolists’
total profit are
maximized is smaller
than the output at
which TR is maximum.
 The level of output at
which MR = SMC
 The slope of MR curve
is smaller than the
slope of SMC curve
 In the short run, the
monopolist should
make sure that the
price should not go
below Average
Variable Cost (AVC).
1 - Equilibrium at
point E, Price = OP,
cost per unit = OC, TR
= OPMQ, TC= OCNQ,
& Π = CPMN
 2. TC = OCMQ, TR =
OPNQ, TC>TR Thus,
Lose = PCMN
 3. TC = TR = OPMQ,
Normal Profit
 The equilibrium under  The monopolist may hold
monopoly in long-run is some patents or
same as in short-run. copyright that limits the
However, in long-run, the entry of other players in
monopolist can expand the market.
the size of its plants  When a monopolist
according to demand. incurs losses, he/she
The adjustment is done may exit the business.
to make MR equal to the On the other hand, if
long run MC. profits are earned, then
 n monopoly, the entry of he/she may increase the
new organizations is plant size to gain more
restricted. profit.
 The best level of
output in the long run
is given by the point
where the LMC curve
intersects the MR
curve from below.
 The most appropriate
scale of plant is the
one whose SAC curve
is tangent to the LAC
curve at the best level
of output.
 By setting a maximum
price at the level
where the SMC curve
cuts the D curve.
 The new D curve ABK
 MR Curve ABCL
 Production at point B
 Price is lower and
output is greater which
reduces total profits of
a monopolists.
 By imposing a lump-
sum tax such as
licence fee or a profit
tax, the government
can reduce or even
eliminate the
monopolist’s profits
without affecting
either the commodity
price or output.
 The government can
also reduce the
monopolist’s profit by
imposing a per – unit
tax.
 Monopolist’s will be
able to shift part of the
burden to consumers,
in the form of a higher
price and a smaller
output of the
commodity.