Monopoly is a form of market structure in
which a single seller or firm has control
over the entire market supply.
Monopoly is a market situation in which
there is only one seller of a product with
barriers to entry of others. The product has
no close substitutes.
no other firms produce
a similar product.
Monopolistic can sell his
commodity at any price he
He has control over price.
The sole seller in the market
is called “monopolist”
to Kautsoyiannis – “Monopoly is
a market situation in which there is a
single seller. There are no close
substitutes of the commodity it
produces, there are barriers to entry.”
Ferguson – “A pure monopoly exists
when there is only one producer in
the market. There are no direct
Single producer and large number of
• No close substitutes.
• Barriers to entry.
• Full control over price.
• Price discrimination.
• No competition.
• No distinction between firm and
Legal Restrictions or barriers to entry of new
Sole control over the supply of scarce and
key raw materials
Efficiency in production
Economies of scale
It arises because of natural factors
soil, rainfall etc
It is in the hands of the government.
certain fields, competition is not
it is created by the law of the country.
It arises due to voluntary factors.
Output and price determination under
monopoly in short-run and long-run
The monopolist maximises his short run
profit, when he produces that level of
output at which.
The short run marginal cost is equal to
the short run marginal revenue (SMC =
The marginal cost is rising
A monopoly firm equates its MC with MR and
determine equilibrium output.
Price is determined in view of demand or average
Equilibrium point B is determined by the intersection
of the SMR curve and the SMC curve. SMC = SMR
OQ equilibrium output is produced by the firm. The
firm can sell this output only at price OP.
In this illustration profit is PABC.
output is decided, the price is
determined correspondingly in relation to the given
Though pure monopolist has full control over the
market supply, he can not determine price
independently in market.
when equilibrium output is decided at the point
of equality between MR and MC the price is
automatically determined in relation to the
demand of product.
Equilibrium output is determined at falling path
of AC curve. Which means the monopolist
restrict output before producing it at the
optimum level in order to maximise his profit.
Long run equilibrium, determined by the
equality of long run marginal cost (LMC)
and the marginal revenue (LMR), so that
profit is maximised.
If the firm is earning some profit in short
run it has to determined the most
profitable long run plant size and
corresponding price and output.
Curve D is the demand curve/ average
LAC and LMC are the long run average
and marginal cost curves.
LAC is envelope to various SAC curves.
LMC and LMR intersect with the point E
where is having optimum level of output.