MANAGERIAL ECONOMICS

MONOPOLY
 INTRODUCTION
 The word Monopoly is a latin word.
 A Monopoly is a market structure in which
there is a single supplier of product.
 It is the opposite extreme of perfect
competition
The MONOPOLY FIRM:
 May be small or large
 Must be the only supplier of the product
 MONOPOLY
MEANING:-
 The word monopoly is composed of two words.
MONO+POLY
 MONO Means single
 POLY Means seller
 Only one seller but different Customers.
 The cross elasticity of demand for a monopoly
is either ZERO or NEGATIVE.
 Monopoly denotes a single seller or
.
producer having the control over the market.
 Single person or number of persons acting
in combination have the power to fix the PRICE.
 Single control may mean a single
producer or a joint stock organization or any
organization , Governmental or quasi-
governmental.
 MAKES A MONOPOLY

Single supplier of good:

 Firm supply = Market supply
 Firm demand = market demand
 Monopoly is a market situation:

In which there is a single SELLER , There

are no close substitute for commodity it produces ,
there are Barriers to entry.
Examples:
 Railways and Telephone were also in monopoly
 But now up to some extent Electricity and Water
 CHARACTERISTICS OF MONOPOLY
There is only a single seller of a product or
service in the market.
The goods produced by a sole seller have not
close substitutes.
The entry of new firm into the industry is
effectively bared by legal or natural barriers.
The firm being the sole supplier of a product
constitutes industry. Firm and Industry thus
have single industry.
 FEATURE OF MONOPOLY
One seller & large number of buyer
Monopoly is also an industry
Restriction on the entry of new firm
No close substitutes
Price Maker
 One seller & large number of buyer

 Under monopoly there should be single

producer of the commodity.
 The buyers of the product are in large
number.
 Consequently, no buyer can influence
the price but the seller can.
  MONOPOLY IS AISO AN INDUSTRY

 Under monopoly situation , there is only

one firm & the difference between firm &
industry disappears.
 There is no difference between the
study of a firm and industry.
  RESTRICTION ON THE ENTRY OF
THE NEW FIRMS:
 There are some restrictions on the entry
of new firms into monopoly industry.

NO CLOSE SUBTITUTES:

 The commodity produced by the firm
should have no close substitutes.
  PRICE MAKER

 Price of the commodity is fully under the

control of the monopolist.
 In case , the monopolist increases the
supply of the commodity , the price of it will
FALL.
 It he reduces the supply , the price of it
will RISE.
  PRIVATE MONOPOLY

 Monopoly firm owned and operate by

private individuals is called PM.
 Main motive is MAKE PROFIT.
Example:
-TATA
-RELIANCE
-BAJAJ
  PURE MONOPOLY
Single seller – A sole producer
Price maker – Control over price
=> Regulated or natural monopolies
Example:
public utility companies
-Natural gas
-Electric
-Water
  Public or state Monopoly :
 Monopoly firm owned and operated by
public or state government.
 It is also known as social monopoly
 It is Controlled either by central or state
government.
 Main motive is to provide welfare to the
public.
Example:
-RAILWATS
-DEFENCE
 Simple monopoly: .
 Simple monopoly firm charges a uniform
price or single price to all the customers.
 He operate in a single market.
 Discriminating monopoly:
 such a monopoly firm charges
different price to different customers for
the same same product.
 It prevails in more than one
market.
 MONOPOLY POWER

1. Power given by the Government

2. Legal Power
3. Technical Power
4. Combinations
 PRICE DISCRIMINATION

Monopolist will charge different prices

from different class of customers.
The idea is to get from each customer
whatever profits could be squeezed out of him
depending on his purse and intensity of
demand.
 Types Price Discrimination

Personal
Discrimination

Price Place
Discrimination Discrimination

Trade
Discrimination
 PERSONAL DISCRIMINATION
 The monopoly will charge different
prices from different customers on the basis of
their ability to pay.
Rich customers=Pay more
Poor customers=pay loss
Example:
 Specialized services of doctors and
Lawyers.
 PLACE DISCRIMINATION

 Monopolist having markets in

different places for the same commodity.
 The locality in which the market is
situated will be the criterion in fixing up
the price.
 TRADE DISCRIMINATION
 TD can also be called use discrimination
 Monopolist will charge different prices
for different types of uses of the same
commodity.
For example:
Electricity
Industrial establishment =cheaper Rate
Domestic consumption = Higher Rate
 EVILS OR DISADVANTAGE OF
MONOPOLY
 Several evils or disadvantages of the
community
 Monopolist cannot fix the price and output
simultaneously , Fix the price to have
Maximum profit.
Price determination :
Depends on two factors
1. Demand for the commodity
2. Cost of production of the commodity
Monopoly price and Output vs Perfect
competition
 An important difference between the
MONOPOLY PRICE and PERFECT
COMPETITION.
Perfect competition=price lower +output larger
Monopoly price =price high + restriction output

Perfect competition=PRICE TAKER

Monopoly price =PRICCE MAKER
DEPARTMENT OF COMMERCE

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