This document provides an overview of pure monopoly, including its key characteristics, examples, and barriers to entry. It also discusses how a pure monopolist determines the profit-maximizing price and output level by setting marginal revenue equal to marginal cost and choosing the quantity where total revenue is maximized. Finally, it examines the economic effects of monopoly, including inefficiency due to underproduction compared to perfect competition.
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Students should be able to:
Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure
Explain and evaluate the differences in efficiency between perfect competition and monopoly
Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers
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Students should be able to:
Understand the characteristics of this model and be able to use them to explain the behaviour of firms in this market structure
Explain and evaluate the differences in efficiency between perfect competition and monopoly
Explain and evaluate the potential costs and benefits of monopoly to both firms and consumers
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Our Vision & Mission – Simplifying Students Life
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A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Imperfect competition covers all situations where there is neither pure competition nor pure monopoly.
Perfect competition and pure monopoly are very unlikely to be found in the real world.
In the real world, it is the imperfect competition lying between perfect competition and pure monopoly.
The fundamental distinguishing characteristic of imperfect competition is that average revenue curve slopes downwards throughout its length, but it slopes downwards at different rates in different categories of imperfect competition.
Monopoly refers to the market situation where there is a
Single seller selling a product which has no close substitutes.
Monopolies are characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm's marginal cost that leads to a high monopoly profit
The word “oligopoly” comes from the Greek “oligos” meaning "little or small” and “polein” meaning “to sell.” When “oligos” is used in the plural, it means “few” ,few firms or few sellers.
DEFINATION:
Oligopoly is that form of market where there are few firms and there is natural interdependence among the firms regarding price and output policy.
The content discusses the Revenue Relationship with examples. Also explains the pricing under different competitions. At the end Break even analysis is explained. Each topic is supported by practice multiple choice questions.
Imperfect competition is an economic concept used to describe marketplace conditions that render a market less than perfectly competitive, creating market inefficiencies that result in losses of economic value.
In the real world, markets are nearly always in a condition of imperfect competition to some extent. However, the term is typically only used to describe markets where the level of competition among sellers is substantially below ideal conditions.A situation of imperfect competition exists whenever one of the fundamental characteristics of perfect competition is missing. When there is perfect competition in a market, prices are controlled primarily by the ordinary economic factors of supply and demand.
Notably, the stock market may be viewed as a continually imperfect market because not all investors have ready access to the same level of information regarding potential investments.
Imperfect competition commonly exists when a market structure is in the form of monopolies, duopolies, oligopolies, or monopsony (very rare)
Market structures that effectively render competition imperfect are most often characterized by a lack of competitive suppliers. Imperfect competition often exists as a result of extremely high barriers to entry for new suppliers. For example, the airline industry has high barriers to entry due to the extremely high cost of aircraft.
The most extreme condition of imperfect competition exists when the market for a particular good or service is a monopoly, one in which there is a sole supplier. A supplier that has a monopoly on the provision of a good or service essentially has complete control over prices.
Because it has no competition from other suppliers, the sole supplier can essentially set the price of its goods or services at any level it desires. Monopolies often charge prices that provide them with significantly higher profit margins than most companies operate with.
A duopoly is a market structure in which there are only two suppliers. Although duopolies are somewhat more competitive than monopolies, the level of competition is still far from perfect, as the two suppliers still have significant control of marketplace prices.
An example of a duopoly exists in the United Kingdom’s detergent market, where Procter & Gamble (NYSE: PG) and Unilever (NYSE: UL) are virtually the only suppliers. The two suppliers in a duopoly often collude in price setting.
Oligopolies are much more common than either monopolies or duopolies. In an oligopoly, there are several – but a small, limited number – of suppliers. The market for cell phone service in the United States is an example of an oligopoly, as it is essentially controlled by just a handful of suppliers. The small number of suppliers, which limits buying choices for consumers, provides the suppliers with substantial, although not complete, control over pricing.
A rare form of imperfect competition is monopsony. A monopsony is a single buyer, rather than any supplier.
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Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
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As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
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The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
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Below is the what'sapp information for my personal pi vendor.
+12349014282
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3. Conditions of Pure Monopoly
• Three Conditions of Pure monopoly
• Single seller – a sole producer
• No close substitutes – unique product
• Blocked entry – strong barriers to entry
• Price maker: Without any competition, a pure
monopolist can control over price.
LO12.1 12-3
4. Examples of Monopoly
• Public utility companies
• Natural gas
• Electric
• Cable television
• Near monopolies
• Intel
• Windows OS
• Professional sports teams
LO12.1 12-4
5. Barriers to Entry
• Barriers to entry are factors that prevent firms from
entering the industry:
• Economies of scale
• Legal barriers to entry like patents and licenses
• Ownership or control of essential resources
• Pricing and other strategic barriers
LO12.2 12-5
6. Economies of Scale: The Natural Monopoly Case
• Under economies
of scale, a long-
run average total
cost is decreasing.
• A larger firm can
produce at lower
cost.
0
Averagetotalcost
Quantity
10
15
$20
50 100 200
ATC
LO12.2 12-6
7. Natural Monopoly
• A natural monopoly exists when the technology for
producing a good or service enables one firm to meet the
entire market demand at a lower price than two or more
firms could.
• With economies of scale, a long-run average total cost
decreases as a firm increases its production.
• It is more efficient for an economy to have one firm operates
in market.
12-7
8. Legal Barriers to Entry
• A legal monopoly is a market in which competition and
entry are restricted by granting of a public franchise,
government license, patent, or copyright.
• Book, music, movie
• Drug, software
• Taxicab
• Medical doctor, lawyer
12-8
9. Control of Essential Resources
• A monopoly can arise in a market in which competition and
entry are restricted by the concentration of ownership of a
natural resource.
• DeBeers
• Standard Oil
12-9
10. Monopoly and Market
• The pure monopolist is the industry
• Monopolist demand curve is the market demand curve
• No supply curve: Monopolist chooses a point on market
demand curve.
• Assume that a sole objective of monopolist is to maximize
its profit.
LO12.3 12-10
11. Monopoly Demand Schedule
Revenue and Cost Data of a Pure Monopolist
Revenue Data Cost Data
(1)
Quantity of
Output
(2)
Price (Average
Revenue)
(3)
Total Revenue
(1) X (2)
(4)
Marginal
Revenue
(5)
Average
Total Cost
(6)
Total Cost,
(1) X (5)
(7)
Marginal
Cost
(8)
Profit [+] or
Loss [-]
0 $172 $ 0
$162
142
122
102
82
62
42
22
2
-18
$ 100
$ 90
80
70
60
70
80
90
110
130
150
$ -100
1 162 162 $190.00 190 -28
2 152 304 135.00 270 +34
3 142 426 113.33 340 +86
4 132 528 100.00 400 +128
5 122 610 94.00 470 +140
6 112 672 91.67 550 +122
7 102 714 91.43 640 +74
8 92 736 93.75 750 -14
9 82 738 97.78 880 -142
10 72 720 103.00 1030 -310
LO12.3 12-11
12. Price and Marginal Revenue in Pure Monopoly
• Monopolist can freely increase
or decrease its price without
worrying about competition.
• Because the market demand
curve is downward sloping,
when monopolist increases its
production, the market price
should decrease.
• A price change may increase or
decrease its total profits,
depending on price elasticity of
demand.
D
Gain = $132
Loss = $30
LO12.3 12-12
0 1 2 3 4 5 6 Q
$142, 3 units
$132, 4 units$142
132
P
13. Monopoly Demand and Price
• Demand curve is downward-sloping
• Marginal Revenue curve is below the demand curve.
• Marginal revenue will be less than price.
• Monopolist sets price in the elastic region of the demand
curve where total revenue is increasing.
• In the inelastic region, any increase in production will reduce total
revenue and increase total cost, resulting in decrease in total profit.
• Monopolist chooses a quantity of output where its MC = MR
for profit maximization.
LO12.3 12-13
14. Demand, Marginal Revenue, and Total Revenue for a Pure
Monopolist
Elastic Inelastic
(b)
Total-revenue curve
D
MR
TR
LO12.3 12-14
0 2 4 6 8 10 12 14 16 18 Q
$200
150
100
50
Price
0 2 4 6 8 10 12 14 16 18 Q
$750
500
250
Totalrevenue
(a)
Demand and
marginal-revenue
curves
15. Output and Price Determination Steps
Steps for Graphically Determining the Profit-Maximizing Output, Profit-Maximizing Price, and
Economic Profit (if Any) in Pure Monopoly
Step 1. Determine the profit-maximizing output by finding where MR = MC.
Step 2. Determine the profit-maximizing price by extending a vertical line upward from the output
determined in step 1 to the pure monopolist’s demand curve.
Step 3. Determine the pure monopolist’s economic profit by using one of two methods:
Method 1.
Method 2.
LO12.4 12-15
Find total cost by multiplying the average total cost of the profit-maximizing output by
that output. Find total revenue by multiplying the profit-maximizing output by the
profit-maximizing price. Then subtract total cost from total revenue to determine the
economic profit (if any).
Find profit per unit by subtracting the average total cost of the profit-maximizing
output from the profit-maximizing price. Then multiply the difference by the
profit-maximizing output to determine economic profit (if any).
16. D
MR
ATC
MC
MR = MC
A = $94
Economic
profit
Pm = $122
12-16
Profit
per unit
Qm = 5 units
0 1 2 3 4 5 6 7 8 9 10 Q
$200
175
150
125
100
75
50
25
Quantity
Price,costs,andrevenue
Profit Maximization by a Pure Monopolist
LO12.4
17. Misconceptions of Monopoly Pricing
• Monopolist does not charge the highest possible price.
• Higher price reduces quantity demanded and total revenue in the
elastic region, potentially lowers its total profits.
• Monopolist may make losses.
• If the average total cost is very high due to large fixed cost, and if
the market demand is small, then it may not be able to charge price
high enough to make profits.
LO12.4 12-17
18. 0
D
MR
ATC
MC
MR = MC
Loss AVCPm
Qm
A
12-18
Loss
per unit
Quantity
The Loss-Minimizing Position of a Pure Monopolist
• By choosing Q at MR
= MC, monopolist is
minimizing its loss.
• If the market is larger
(market demand
curve shifts to the
right) or ATC is lower,
then the monopolist
can make profits.
V
LO12.4
Price,costs,andrevenue(dollars)
19. Monopoly and Efficiency
• Resources are allocated efficiently when marginal benefit
equals marginal cost.
• An efficient output is at point where monopolist’s MC curve
crosses market demand curve (market demand reflects
marginal utility of consumers).
• Purely competitive market produce at MC = P.
• Monopolist produces less than the efficient output.
• Deadweight loss due to under-production
• Loss of consumers surplus
12-19
20. Inefficiency of Pure Monopoly Relative to a
Purely Competitive Industry
• Monopolist produces less than output in purely competitive market (Qm < Qc).
• Monopolist charge higher price than purely competitive market (Pm > Pc).
• Monopolist’s ATC is higher than minimum ATC of purely competitive firms.
(a)
Purely competitive market
(b)
Pure monopoly
D
D
S = MC
MC
P = MC =
minimum ATC
MR
Pc
Qc
Pc
Pm
QcQm
a
b
cd
LO12.5 12-20
0 Q
P
MR = MC
P
0
Efficiency loss
Q
21. Economic Effects of Monopoly
• Monopoly market has many economic effects beside
loss of efficiency.
• Income transfer
• Cost complications (Potential benefits)
• Economies of scale
• Simultaneous consumption
• Network effects
• X-inefficiency
• Rent-seeking behavior
• Technological advance
LO12.5 12-21
22. Income Transfer
• Income transfer: Monopolist increases its profit at cost of
loss of consumer surplus.
• Because it creates a deadweight loss, transferring profits
from monopoly to consumers does not offset all losses of
consumers.
12-22
23. Cost Complications
• Economies of scale: Monopolist can achieve lower average total cost.
• Network effects: a value of a product increases as a number of users
increases.
• Technological advance: Only large firms can engage in large scale R&D.
• X-inefficiency: A monopolist may not have an incentive to minimize its
cost.
• Rent-seeking behavior: A monopolist spends on activities to acquire or
maintain legal barriers to entry from government.
• Technological advance: Lack of competition may impede technological
advancement.
12-23
24. Assessment and Policy Options
• To reduce the problems created by monopoly, the
government may
• Antitrust laws: Break up the firm.
• Regulate it: Government determines price and quantity.
• Ignore it: Let time and markets get rid of monopoly.
• New technology and new products
• Foreign competition
LO12.5 12-24
26. Price Discrimination
• Price discrimination
• Charging different buyers different prices
• Different prices are not based on cost differences
• Conditions for success
• Monopoly power
• Market segregation
• No resale
• Examples
• First class vs. Economy class
• Movie theaters & Amusement parks
• Lunch & dinner menu at restaurant and Happy hours
• Coupons
• Bulk-buyer discount (Warehouse) & Buyer membership (Amazon Prime)
LO12.6 12-26
27. How Price Discrimination Works
• Monopolist can increase its profit by charging a high price to
those consumers who are willing to pay high (high MB) and
charging a low price to those consumer who are not willing to
pay high (low MB)
• Monopolist can increase its profit by charging a high price to
inelastic demand and a low price to elastic demand.
12-27
28. Price Discrimination Applied to Different Groups of Buyers
MC = ATC MC = ATC
Qb
Qs
Ps
Pb
P P
MRb MRs
Db Ds
(a) Small businesses (b) Students
Economic profit (a)
Economic profit (b)
LO12.6 12-28
Q 00 Q
One price for all
29. Regulated Monopoly
• Natural monopolies which operate under economies of scale.
• Socially optimal price
• Set price equal to marginal cost: P = MC
• Monopolist incurs losses because ATC > MC under decreasing ATC.
• Fair return price
• Set price equal to average total cost: P = ATC
• Guarantee normal profits to monopolist.
• Dilemma of regulation
• Socially optimal price or fair return price
• X-inefficiency problem
LO12.7 12-29
30. Rate Regulation of a Natural Monopoly
Monopoly
price
Fair-return
price
Socially
optimal
price
Pr
D
r
f
b
a
Pf
Pm
Qm Qf Qr
MR
MC
ATC
LO12.7 12-30
0
Quantity
Priceandcosts(dollars)
31. Last Word: Personalized Pricing
• “Big Data” available to Internet retailers.
• Ability to set a price according to consumer’s perceived
ability to pay.
• Based on your online buying habits, backgrounds, and
preferences.
• Personalized pricing strategy can fail when consumers
comparison shop.
12-31
32. Monopoly Power in the Internet Age
• Google dominates search
• Facebook dominates social media
• Amazon dominates as an online retailer
• Barriers of entry
• Network effects of being large attract more users
• Economies of scale
12-32