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Contents
Introduction (Meaning /Features Characteristics).
Types of Monopoly.
Example of Monopoly.
Introduction
Definition
Amonopoly is a firm that produces a good or
service for which no close substitute exists and
that is protected by a barrier that prevents
other firms from selling that good or service. In
monopoly, the firm is the industry.
Market Power
Market power is the ability to influence the
market, and in particular on the market price,
by influencing the total quantity offered for
sale.
Key Features
No close substitute.
If a good has a close substitute, even though only one firm
produces it, that firm effectively faces competition from
the producers of substitutes.
Barriers to Entry.
Legal or natural constraints that protect a firm from
potential competitors are called barriers to entry.
Types of Monopoly
Perfect Monopoly
Imperfect Monopoly
Perfect monopoly is a
absolute monopoly.
Imperfect monopoly is
relative or simple monopoly.
No fear of competition
No substitute
Types of Monopoly
Private Monopoly
Production owned by
private individual or
private organization.
Public Monopoly
Production owned by
government.
Profit oriented.
Managed and controlled by
an individual.
Example : Reliance Energy.
Types of Monopoly
Natural Monopoly
Types of Monopoly
Geographic Monopoly
Markets that enjoy monopoly due to
geographical boundaries
Only one company that offers a particular good or
service in an area
Example: Nike is the only shoe sold in Denver,
because the mountains around prevent other
shoe companies to ship in quantities of shoes,
while Nike just happens to have a factory in
Denver
Types of Monopoly
Simple Monopoly
Simple
monopoly firm
charges a
uniform price or
single price to all
the customers.
Discriminating
Monopoly
Such a monopoly
firm charges
different price to
different customers
for the same
product.
Examples: Local
Cable Network
Examples: MHADA
Types of Monopoly
Legal Monopoly
When monopoly exists on account of
trade marks, patents, copy rights,
statutory regulation of government etc.,
it is called legal monopoly.
Examples: Music industry
Types of Monopoly
Technological Monopoly
It emerges as a result of economies of
large scale production, use of capital
goods, new production methods, etc.
Examples: Google (Search engine),
Microsoft Windows (OS)
Types of Monopoly
Joint Monopoly
A number of business firms acquire
monopoly position through
amalgamation, cartels, syndicates, etc, it
becomes joint monopoly.
Example: 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.
MonopolysOutput
Output
AAMonopolys
andPrice
PriceDecision
Decision
and
Price
per $ Quantity
Demand
(P)
(Q)
20
18
16
14
12
10
0
1
2
3
4
5
Total
Revenue
Marginal
Revenue
TR=(P x Q)
MR= TR/
0
18
32
42
48
50
0
18
14
10
6
2
Total
Cost
Marginal
cost
TC
MC= TC/ Q
20
21
24
30
40
55
0
1
3
6
10
15
Profit
Average Average
Total Cost Revenue
(TR TC)
(TC/Q)
-20
-3
+8
+12
+8
-5
0
21
12
10
10
11
(TR/Q)
0
18
16
14
12
10
Economic Profit = $ 12
TC
T
C
O
S
T
50
TR
40
30
&
R
E
V
E
N
U
E
20
10
1 2
Quantity
20
Perfect Competition: Equilibrium occurs where the Supply curve & Demand Curve
Intersect. Firm as take the price P2 & Maximizes its profit by producing the Output
where MC = Price.
Monopoly: If industry taken over by a single firm. Customer do not change, so the
Market Demand curve remain same as in Perfect Competition. The monopoly
maximizes profit by producing the quantity at which MR = MC.
Compares to a Perfectly competitive Industry, a Single price Monopoly Produces a
smaller output and charges a higher price.
P
MC
R
Single Price
I
Monopoly
C
E P1
&
Perfect Competition
C P2
O
S
T
MR
Advantages and
Disadvantages
Advantages
Advantages and
Disadvantages
Disadvantages
Exploitation of consumers
Restriction of consumers choice
Absence of competition leads to inefficiency
Increase in price of product
Exploitation of labor
Thank You