Monopoly Market Structure
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Monopoly Market Structure

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what is monopoly, its characteristics, probable cause & equilibrium price and output in short n long run.

what is monopoly, its characteristics, probable cause & equilibrium price and output in short n long run.
u can mail me ur views on rajeshkr.1128@gmail.com

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Monopoly Market Structure Monopoly Market Structure Presentation Transcript

  • Imperfect
    Competition
    • MONOPOLY
    Rajesh Kumar
    PGP-I
    MBA-ABM
    CABM,GBPUA&T
    12/9/2009
    1
    continued...
  • Imperfect Competition
    An imperfectly competitive industry is an industry in which single firms have some control over the price of their output.
    Some examples are Monopoly, Oligopoly and Monopolistic competition.
    Monopoly:- A market structure in which only one producer or seller exists for a product that has no close substitutes
    12/9/2009
    2
    continued...
  • The characteristics of Monopoly are
    • Single Seller
    • No Close Substitutes
    • Price Maker
    • Blocked Entry
    • Non-price Competition
    • Availability of information(Imperfect)
    12/9/2009
    3
    continued...
  • MONOPOLY
    Monopolies exist because of barriers to entry into a market that prevent competition.
    ex:-railways, electricity.
    There are three general classes of barriers to entry(CAUSE):
    Natural barriers, the most common being economies of scale
    Actions by firms to keep other firms out
    Government (legal) barriers
    12/9/2009
    4
    continued...
  • Economies of Scale
    In some industries, the larger the scale of production, the lower the costs of production.
    Entrants are not usually able to enter the market assured of or capable of a very large volume of production and sales.
    This gives incumbent firms a significant advantage.
    Examples are electric power companies and other similar utility providers.
    12/9/2009
    5
    continued...
  • Government
    Governments often provide barriers, creating monopolies.
    As incentives to innovation, governments often grant patents, providing firms with legal monopolies on their products or the use of their inventions or discoveries for a period of 17 years.
    12/9/2009
    6
    continued...
  • Types of Monopolies
    Natural monopoly: A monopoly that arises from economies of scale. The economies of scale arise from natural supply and demand conditions, and not from government actions.
    Local monopoly: a monopoly that exists in a limited geographic area.
    Bilateral Monopoly: only one buyer, very rare
    ex; expensive defence goods-govt.is single buyer.
    Regulated monopoly: a monopoly firm whose behavior is overseen by a government entity.
    Monopolization: an attempt by a firm to dominate a market or become a monopoly.
    12/9/2009
    7
    continued...
  • Monopoly: Equilibrium
    P
    y = Q
    Demand
    MR
    12/9/2009
    8
    continued...
  • Monopoly: Equilibrium
    MC
    P
    y
    Demand
    MR
    12/9/2009
    9
    continued...
  • Monopoly: Equilibrium
    MC
    P
    AC
    y
    Demand
    MR
    12/9/2009
    10
    continued...
  • Monopoly: Equilibrium
    MC
    Output Decision
    MC = MR
    P
    AC
    ym
    y
    Demand
    MR
    12/9/2009
    11
    continued...
  • Monopoly: Equilibrium
    MC
    Pm = the price
    P
    AC
    Pm
    ym
    y
    Demand
    MR
    12/9/2009
    12
    continued...
  • Monopoly: Equilibrium
    Firm = Market
    Short run equilibrium diagram = long run equilibrium diagram (apart from shape of cost curves)
    At qm: pm > AC therefore you have excess (abnormal, supernormal) profits
    Short run losses are also possible
    12/9/2009
    13
    continued...
  • Monopoly: Equilibrium
    MC
    The shaded area is the excess profit
    P
    AC
    Pm
    ym
    y
    Demand
    MR
    12/9/2009
    14
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
    PROFIT-MAXIMIZING CASE:
    A firm in the short run earns maximum profit when it meets the following conditions;
    MR = MC and MC curve cuts MR from below
    Average Revenue is greater than Average Total Cost.
    12/9/2009
    15
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
    • PROFIT-MAXIMIZING CASE:
    MC
    Revenue/
    Cost
    ATC
    P
    Profit
    AVC
    E
    AR
    MR
    0
    Output
    12/9/2009
    16
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
    NORMAL PROFIT CASE:
    A firm in the short run earns normal profit when it meets the following conditions;
    MR = MC and MC curve cuts MR from below
    Average Revenue is equal to Average Total Cost.
    12/9/2009
    17
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
    • NORMALPROFIT CASE:
    MC
    Revenue/
    Cost
    ATC
    P
    AVC
    E
    AR
    MR
    0
    Output
    12/9/2009
    18
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
    LOSS-MINIMIZING CASE:
    A firm in the short run minimize loss in following way;
    MR = MC and MC curve cuts MR from below
    Average Revenue is less than Average Total Cost but greater than AVC.
    12/9/2009
    19
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN SHORT RUN
    • LOSS-MINIMIZING CASE:
    MC
    Revenue/
    Cost
    ATC
    Loss
    P
    AVC
    E
    AR
    MR
    0
    Output
    12/9/2009
    20
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN LONG RUN
    A monopoly firm will be in equilibrium in long run and will earn Economic profit if;
    MC = MR and MC cuts MR curve from below
    AR is greater than Average Cost and
    There is no threat of new entry into the market
    If there is threat of new entry so monopolist will reduce prices and will earn only normal profit.
    12/9/2009
    21
    continued...
  • EQUILIBRIUM PRICE AND OUTPUT UNDER MONOPOLY IN LONG RUN
    MC
    Revenue/
    Cost
    ATC
    P
    Profit
    AVC
    E
    AR
    MR
    0
    Output
    12/9/2009
    22
    continued...
  • thank-you…….
    have a nice day.
    12/9/2009
    23
    continued...