Current News

News
 News Link

• https://economictimes.indiatimes.com/news/econo
my/indicators/india-placed-72nd-on-global-list-with
-average-monthly-wage-of-rs-32800-report/articles
how/77806437.cms
Implication of this news
Take–away of today’s lecture
Monopoly
 Learning Outcome

 To understand the concept of Monopoly

 To analyze the Price output determination in

Monopoly

.
 Let’s recall previous lecture

Normal profits

Supernormal Profit

Subnormal Profits

Shut down point in perfect completion

 Today’s Topic

• Concept of Monopoly
• Features of Monopoly
• Types of Monopoly
• Price and output determination in short run
 Introduction

 A monopoly (from the Greek word “mono” meaning single and

“polo” meaning to sell) is that form of market in which a single
seller sells a product (good or service) which has no substitute.
 Monopoly exists when there is no close substitute to the
product and also when there is a single producer and seller of
the product
 E.g. Indian Railway is a monopoly, since there is no other agency in the
country that provides railway service.

 Pure monopoly is that market situation in which there is

absolutely no substitute of the product, and the entire market
is under control of a single firm.
10
10
 Features
 Single seller
 The entire market is under control of a single firm.
 Single product
 A monopoly exists when a single seller sells a product
which has no substitute or, at least, no close substitute in
the market.
 No difference between firm and industry
 There is a single firm in the industry
 Independent decision making
 Firm is regarded as a price maker
 Restricted entry
11
 Existence of barriers leads to the emergence and/or
11

survival of a monopoly
 Polling

• A market situation were there is absolutely no any

substitute .
• Monopoly
• Pure Monopoly
• Perfect competition
• Non of the above
 Types of Monopoly
 Legal Monopoly
 Created by the laws of a country in the greater public interest.
 To prevent disparity in distribution of wealth, or imbalanced growth of
the economy(State electricity Boards)
 Economic Monopoly
 Created due to superior efficiency of a particular player.
 Attainment of economies of scale leads to monopoly, often referred to as an
“innocent” or a structural barrier.
 Technical know-how restrained in the hold of single
 Regional Monopoly
 Geographical or territorial aspects also help in creation of monopolies.
 Patents or copyrights
 Control over the essential raw material 13
13
 Polling

• Which of the following is an example of the

Monopoly?
• Apple
• Microsoft
• Samsung
• LG
 Demand and MR Curves

 The demand curve of the

Revenue, monopolist is highly price
Cost
inelastic because there is no
close substitute and
consumers have no or very
little choice.
 It is not perfectly inelastic
because pure monopoly does
AR not exist in real life.
MR
O  Hence it faces a normal
Quantity downward sloping demand (AR)
curve.
 MR curve corresponds.

15
15
 Price and Output Decisions in Short Run
Price,
Revenue, AR=AC Price, AR<AC
Cost Revenue,
MC Cost MC AC
AC
A B
PE B PE C

E
E AR
AR MR
MR
O QE O QE Quantity
Quantity

Total revenue= OPEBQE Total revenue= OPECQE

Total cost = OPEBQE Total cost = OABQE
Profit = Nil Loss = ABCPE
Firm makes normal profit. Firm makes loss. 16
16
 Polling

When goods in the domestic market are sold at a high price in the foreign market at a
low price, it is a situation of
Dumping
Perfect Competition
Oligopoly
Duopoly
A. Dumping
B.. Perfect Competition
C. Oligopoly
D. Duopoly
 Price and Output Decisions in Long Run

 A monopolist is in full control of the market price

 It would not continue to incur loss in the long run.
 It would try to reduce cost of production
 Otherwise it would close down in the long run.
 Monopolist would try to earn at least normal profit in the long run and
may earn supernormal profit due to entry restrictions in the market.
 If in the long run a monopoly firm earns supernormal profit
 This would attract competition and high price would make it possible for a
new entrant to survive.
 To retain its monopoly power, the firm may have to resort to a low
price and earn only normal profit even in the long run to create an
economic barrier to new entrants.

19
19
Which market structure do the following products fall
into?

• Agricultural commodities
• Bread
• Cars
• Public transport service of auto rickshaw
• Films
• Electronic goods
• Mobile phones
• Telecom

20