Meaning Conditions Sources / Causes Barriers Nature of demand and MR curve MR, Price and Elasticity Demand Price

e output equilibrium

Price and Marginal Cost Monopoly Equilibrium and Price Elasticity Monopoly Equilibrium in case of zero marginal cost Long Run Equilibrium

Absence of Supply curve Monopoly, Resource allocation and social welfare

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MONOPOLY

C
O N T E N T S

WHAT IS A MARKET? THE 4 TYPES OF MARKET STRUCTURE WHAT IS MONOPOLY ? TYPES OF MONOPOLIES THE CREATION OF MONOPOLIES BENEFITS

COSTS OF MONOPOLY
PORTERS FIVE FORCE MODEL MAXIMIZATION OF PROFIT DEMAND CURVE & CORRESPONDING MARGINAL REVENUE CURVE THE EQUILIBRIUM OF A MONOPOLIST A MONOPOLIST HAS NO SUPPLY CURVE
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A PLACE

BUYERS & SELLERS MEET

BUY & SELL THE COMMODITIES

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NUMBER OF FIRMS

MONOPOLY

OLIGOPOLY

MONOPOLISTIC COMPETITION

PERFECT COMPETITION

One Firm

Few Firms

Many Firms

Many Firms

DIFFERENTIATED PRODUCTS

IDENTICAL PRODUCTS

WHAT IS A MONOPOLY?
Market structure or environment in which one firm produces a good or service with no close substitutes

PURE & IMPERFECT LEGAL, NATURAL, TECHNOLOGICAL & JOINT

TYPES OF MONOPOLY
SIMPLE & DISCRIMINATING

PRIVATE & PUBLIC

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The reason a monopoly exists is that other firms find it unprofitable or impossible to enter the market

BARRIERS TO ENTRY
NATURAL TECHNICAL GOVERNMENT SOCIOLOGICAL
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(LEGAL)

BENEFITS
EXPLOIT ECONOMIES OF SCALE

DYNAMIC EFFICIENCY

REVENUE

AVOIDANCE OF DUPLICATION OF INFRASTRUCTURE

COSTS OF MONOPOLY
LESS CHOICE HIGH PRICES RESTRICTED OUTPUT

LESS CONSUMER SURPLUS

PRODUCTIVE INEFFICIENCY

ASYMMETRIC INFORMATION

NET WELFARE LOSS

ALLOCATIVE INEFFICIENCY

LESS EMPLOYMENT
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PORTERS FIVE FORCES FOR MONOPOLY

BARRIERS
TO ENTRY

BUYER POWER

SUBSTITU TES

LEVEL OF COMPETIT ION

SUPPLIER

POWER

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FIRMS EQUILIBRIUM UNDER MONOPOLY: MAXIMIZATION OF PROFIT

The monopolists goal is to

maximize economic profit

In the short run this means to choose the level of output for which the difference between total revenue and short-run total

cost is greatest

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Marginal Revenue & Elasticity The less elastic demand is with respect to price, the more price will exceed marginal revenue For all elasticity values less than 1 in absolute value marginal revenue will be negative (P <1and MR<0) For all elasticity values larger than 1 in absolute value marginal revenue will be positive (P >1and MR>0) For all elasticity values equal to1 in absolute value marginal revenue will be zero (P =1and MR=0)
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THE EQUILIBRIUM OF A MONOPOLIST

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MONOPOLY PRICE AND OUTPUT

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LONG RUN EQUILIBRIUM UNDER MONOPOLY

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SHIFT FROM SHORT RUN TO LONG RUN EQUILIBRIUM POSITION UNDER MONOPOLY

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PRICE IS HIGHER & OUTPUT SMALLER THAN UNDER PERFECT COMPETITION

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A MONOPOLIST HAS NO SUPPLY CURVE

The monopolist is a PRICE MAKER
When demand shifts rightward, elasticity at a given price may either increase or
decrease, and vice-versa So there can be no unique correspondence between the price (P) a monopolist charges and the amount she/he chooses to produce

Monopoly has a supply rule, which is to equate marginal revenue and marginal cost (MR=MC)

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