Monopoly market:-

It is that market situation in which there is a single seller of the

commodity having full control over the entire market. There are no close substitute
available of the commodity.
Definition:- Koutsoyiannis-“ Monopoly is a market situation in which there is a single seller.
There are no close substitute of the commodity. it produces, there are barriers to entry.”
Ferguson-“ A pure monopoly exits when there is only one producer in a market. There are no
dire competition.

Features:-
I. Single seller and large number of buyers- This is the sole seller of the commodity and
he has full control over the supplier of the products. However, there are large number
of buyer and there is a perfect competition among them. There are so many buyer in
the market that not one buyer is sufficiently important to able to have any influence
on the price of the product by his own action. So far as an individual buyer as
concerned, price of the product as is given.
II. No difference between a firm and an industry- Since, there is a single seller there is
no difference between the firm and industry. So the firm itself is the industry. so the
distinction between the firm and industry disappears.
III. No close substitute- The product produces by monopolist has no close substitute
which means that a monopolist has the power to influence the price of the
commodity because of his control over the supply.
IV. Barriers on the entry of new firm- There are strong barriers on the entry of new firm
in the industry because if a new firm enter in the market monopoly seizes to exit.

V. Price maker under monopoly- Producer has the power to influence the price of the
commodity because of his control over the supply. Thus, monopolist is a price maker.
VI. Different nature of average revenue and marginal revenue- Under monopoly average
revenue and marginal revenue are of different in nature.
Revenue table under monopoly market

Unit sold Price Total revenue Average Marginal

revenue revenue

1 10 10 10 10

2 9 18 9 8

3 8 24 12 6
 4 7 28 14 4

5 6 30 15 2

Price determination under monopoly/ Price output policy under monopoly:-

Monopoly refers to a market where a single seller for a product who evidently have complete
control over the supply of the commodity. The monopoly have the power to charge a higher a lower
price. In a village, there may be one shop and shopkeeper can charge higher price. He had not afraid
of any competition. Monopoly said to exist in the following features are present.

i. There is only one firm selling a product, but there may be any member of buyer for the
same.
ii. The product sold by the monopolist has no close substitute.
iii. There is no freedom for other firm to enter into of particular market.
iv. The monopoly firm is only one seller and therefore, has complete control over the supply of
the commodity. he can sell as much as he wants.
v. The monopoly firm can fix any price it likes. In fact, it can even charge different price for
different person if so desired.
The monopolist is interested in getting maximum profit. This
means that it would not produce even a single unit of a commodity at a loss. Because, even
if one unit is produced at a loss, the profit would be reduced by the amount of loss. To
maximize profit of a firm, should produce and sell to the point at which the additional made
to the total revenue by the last unit(marginal revenue), total cost by the last unit(marginal
cost). Beyond this point of equality of MR and MC. The firm will experience losses. Because,
additional cost will be more than revenue receipts.
Thus, monopoly price will be determined by the
equilibrium point at which MC & MR are equal.

Monopoly price output determination:-

By super imposing revenue curve on cost curve, the monopoly firm
find out the equilibrium price and output. As stated at the outset, the price would be such
that, the firm should get maximum profit. The equilibrium price is determined by at which
MC & MR are equal.
x

A
 In the above diagram, four curves are shows two revenue and two cost curve. The equality of
MC & MR are seen at point E. A perpendicular line passing through point E to OX axis, give
the equilibrium quantity OQ & touching the demand curve(AR) above given the equilibrium
price OP. The equilibrium quantity is OQ & the equilibrium price is OP. it should be noted at
point E source the equality of MC & MR. The firm should not produce beyond that point. If it
does MC will higher than MR no firm will produced an additional unit revenue. Hence, the
firm stop producing beyond the intersection point of equality of MC & MR.

Calculation of monopoly profit-

Total profit- TR – TC
TR is calculated by multiplying AR(price) by the number of units. In the above diagram price
is OP or CQ & number of unit sole is OQ. Total revenue is equal to (OQ X OP) OQCP. Total cost
is calculated in a similar manner by multiplying AC by the number of unit produced.
Total cost = OA x OQ= OQBA, Thus, Total profit = OQCP-OQBA= ABCP(Shaded area)
It may be noted that this is the maximum profit which the monopoly firm can get.

Difference between perfect competition and imperfect

competition:-
Perfect competition
1- Description 1- Extreme market situation, where
There is only one seller. He has no
Competition and so control supply.
Imperfect competition
A fair, direct competition
between buyers & buyers;
Sellers & sellers; & finally
Between buyers & sellers.

2- Buyers & Only one seller & practically all buyers Large number of buyers
sellers Depend on him. Hence, he has absolute & sellers or buyers can
Control over the market. alter the price in the
market.

3- Supply Supply from only one seller, hence Supply comes from large
absolute control over the supply. number of sellers individual
supply is negligible.

4- Product Homogeneous product. Homogeneous product.

5- Demand Demand is inelastic demand curve Demand is perfectly elastic.

Slopes downward. Demand curve is a horizontal
Straight line.

6- Nature of No competition at all no price Pure & perfect competition

competition or product competition. in price.

7- Price Higher price higher than all Normal price P=MR=MC

competitive price P>MR=MC
 8- Output- Small output fixed by the sole Large output fixed by MR=MC.
Seller.
9- Profit Excess profit monopoly gain. Realised by the price
Competition.

10- Application- pure monopoly is rare Quite unreal.

But elements of monopoly
Are there in markets.

Difference between monopoly & imperfect competition:-

Monopoly Imperfect competition

1-Description Extreme market situation where A mixture of monopoly
There is only one seller. He has no and competition.
Competition and so controls supply
And price.

2- Buyers and Only one seller and practically all Slightly large number of
Sellers buyers depend on him. Hence, he sellers i.e , competitive
Has absolute control over the market. Monopolist.

3- Supply Supply from one seller. Hence, absolute Supply from large no.
Control over the supply. of sellers but subject
To control & competition.

4- Demand Demand is inelastic. Demand curve Demand may be elastic or

Slopes downward. Inelastic accordingly to the
Nature of competition.

5- Product Homogeneous product. Different product purposely

Differentiated.

6- Nature- No competition at all. No price or Fairly good competition.

Product competition. competition between
monopolists is product
differentiation and selling
cost.
7- Price- Higher price higher than all competitive Highest price as cost of
Price. P> MR = MC product differentiation
And selling cost is added
To the price.
8- Output- Small output fixed by the sole seller. Output varies with product
. differentiation and selling costs.

9- Profit Excess profit monopoly gain. Extra profit realised by products

differentiation and selling cost
mostly monopoly profit.
10- Application Pure monopoly is rare but elements More realistic in life.
Of monopoly are there in markets.