Economics Market Monopoly & Monopolistic

1. Economics presentation
Present by Sourabh Arora

2. Types of market structures
 Monopoly
 Oligopoly
 Monopolistic
 Perfect competition
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3. Types of market structures
 Monopoly
 Oligopoly
 Monopolistic
 Perfect competition
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4. Definitions of Monopoly
A market structure characterized by a single seller, selling a unique
product in the market. In a Monopoly market, the seller faces no
competition, as he is the sole seller of goods or services with no close.
or
Monopoly is represented by a market situation in which there is a single
seller of a product for which there are no substitutes; this single seller is
unaffected by and does not affect the prices and outputs of other
products sold in the economy.
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5. Feature of Monopoly
 Single seller in the market many buyers
 No close-substitute of product exists
 Seller is price-maker
 Inelastic demand of commodity
 Price discrimination possible
 Restriction of entry of new firms
 Single firm industry
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6. Price-output determination under monopoly
In monopoly, there is only one producer of a product, who influences the
price of the product by making Change in supply. The producer under
monopoly is called monopolist. If the monopolist wants to sell more, he
can reduce the price of a product. On the other hand, if he is willing to sell
less, he can increase the price. Qua
ntity
Price=Avera
ge revenue
Total
revenu
e
Marginal
revenue
0 10 0
1 9.5 9.5 9.5
2 9 18 8.5
3 8.5 25.5 7.5
4 8 32 6.5
5 7.5 37.5 5.5
6 7 42 4.5
7 6.5 45.5 3.5
8 6 48 2.5
9 5.5 49.5 1.5
10 5 50 0.5
11 4.5 49.5 -0.5
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7. Here is no difference between organization and industry
under monopoly. Accordingly, the demand curve of the
organization constitutes the demand curve of the entire
industry will be same
Here, AR is the price of a product
0
2
4
6
8
10
12
0 2 4 6 8 10 12
PRICE
PRICE=AVERAGE REVENUE
Qua
ntity
Price=Avera
ge revenue
Total
revenu
e
Marginal
revenue
0 10 0
1 9.5 9.5 9.5
2 9 18 8.5
3 8.5 25.5 7.5
4 8 32 6.5
5 7.5 37.5 5.5
6 7 42 4.5
7 6.5 45.5 3.5
8 6 48 2.5
9 5.5 49.5 1.5
10 5 50 0.5
11 4.5 49.5 -0.5
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8. The AR and MR curve depicts the following facts:
i. When MR is greater than AR, the AR rises
ii. When MR is equal to AR, then AR remains constant
iii. When MR is lesser than AR, then AR falls
AR falls under monopoly; thus, MR is less than AR.
-2
0
2
4
6
8
10
12
0 2 4 6 8 10 12
PRICE
QUANTITY
PRICE=AV
ERAGE
REVENUE
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Qua
ntity
Price=Avera
ge revenue
Total
revenu
e
Marginal
revenue
0 10 0
1 9.5 9.5 9.5
2 9 18 8.5
3 8.5 25.5 7.5
4 8 32 6.5
5 7.5 37.5 5.5
6 7 42 4.5
7 6.5 45.5 3.5
8 6 48 2.5
9 5.5 49.5 1.5
10 5 50 0.5
11 4.5 49.5 -0.5

9. The MR and TR curve depicts the following facts:
i. When TR is increases in diminishing rate MR fall
ii. When TR is highest then MR is zero
iii. When TR falls then MR negative
When seller is selling first & one unit of commodity AR=TR=MR
-10
0
10
20
30
40
50
60
0 2 4 6 8 10 12
PRICE
QUANTITY
PRICE=AVERAG
E REVENUE
TOTAL REVENUE
MARGINAL
REVENUE
Qua
ntity
Price=Avera
ge revenue
Total
revenu
e
Marginal
revenue
0 10 0
1 9.5 9.5 9.5
2 9 18 8.5
3 8.5 25.5 7.5
4 8 32 6.5
5 7.5 37.5 5.5
6 7 42 4.5
7 6.5 45.5 3.5
8 6 48 2.5
9 5.5 49.5 1.5
10 5 50 0.5
11 4.5 49.5 -0.5
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10. Super normal profit
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11. Super normal profit
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12. Normal profit
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13. Loss
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14. Super normal profit in long run
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15. Definitions of Monopolistic
Monopolistic competition is a market situation in which there are many
sellers of a particular product, but the product of each seller is in some
way differentiated in the minds of consumers from the product of every
other seller.
or
Monopolistic is a type of imperfect competition such that many
producers sell products that are differentiated from one another (e.g. by
branding or quality) and hence are not perfect substitutes. In
monopolistic competition, a firm takes the prices charged by its rivals as
given and ignores the impact of its own prices on the prices of other
firms
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16. Feature of Monopolistic
 Large number of sellers and buyer
 Product differentiation
 Easy entry and exit of firm in industry
 Lack of perfect knowledge of seller and buyer
 Neither a price-taker nor a price-maker
 Substitute of product exist
 Elastic demand of commodity
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17. PRICE AND OUTPUT DETERMINATION
UNDER MONOPOLISTIC COMPETITION
The equilibrium of a firm under monopolistic competition can be seen
in:
• Short run
• Long run
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18. Short run equilibrium
A monopolist maximizes his short run profits if the following two conditions are
fulfilled:
• Marginal Cost(MC) is equal to Marginal Revenue(MR).
• Marginal Cost must be rising.
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19. Assumptions:
• The number of sellers is large and they act independently of each other.
• The product of each seller is differentiated from the other products.
• The firm has a determinate demand curve (AR) which is elastic.
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20. SUPER-NORMAL PROFIT
Super normal profits can be defined as extra profit above the level of normal profit.
These profits occurs where AR is greater than MR.
MC curve cuts the MR curve at point E which is equilibrium that can establish a
price OP and output OX1.
As a result, a firm earns super normal profit represented by the area PLMN.
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21. NORMAL PROFIT
 Normal profit is the minimum level of profit needed for the company to remain
competitive in the market.
 It occurs when the difference between firm’s total revenue and total cost is equal
to zero.
 It indicates the same price and output (P>MC) as same as in the case of
monopoly but the difference is that the price in monopolistic competition is
greater than that of monopoly.
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22. IT INDICATES THE SAME PRICE AND OUTPUT (P>MC) AS
SAME AS IN THE CASE OF MONOPOLY BUT THE DIFFERENCE
IS THAT THE PRICE IN MONOPOLISTIC COMPETITION IS
GREATER THAN THAT OF MONOPOLY.
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23. LOSS
WHEN MARGINAL COST IS GREATER THAN THE MARGINAL
REVENUE THEN A FIRM INCURS LOSSES.
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24. In this figure, per unit cost (LX1) is greater than price
(ON) of a quantity MX1 of a firm and loss per unit is LM
(LX1-MX1) . So the total loss is LMNP.
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25. Long run equilibrium
In the long run, there is gradual decrease in the
profits of a firm because in long run new firms
enter the market due to freedom of entry and
exit and the level of competition increases.
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26. 24 SRB

27. Refers to :
1. www.economicsdiscussion.net
2. General economics (CPT) book edition April 2012
3. Self understanding by Sourabh Aora
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