Presentation on monopoly market structure by taking the example of wapda and ptcl?
Why other firms cannot enter into it?
What are the problem faced by Monopoly Market?
2. WHAT IS MONOPOLY
Monopoly refers to the market of a particular commodity where there
is only one seller of the said commodity.
“Monos” is a Greek word which means “Sole” or “Single”
“Poleo” means “Sell”
Thus it means supply of commodity by a single seller.
3. INTRODUCTION
“Monopoly is a market situation where a single firm represents the whole
industry. Such single firm has complete control over the production or sale of the
commodity.The good sold by monopolist does not have any close substitute.”
A Monopolist:
Is the sole supplier of an industry’s product and the only potential supplier.
Is protected by some form of barrier to entry.
Faces the market demand curve directly.
4. EXAMPLES OF MONOPOLY IN PAKISTAN
▪ PTCL: Pakistan telecommunication company limited is a mega corporation
And leading telecommunication authority in Pakistan to provide telephonic and
Internet services.
WAPDA: The water and power development authority is a government
Owned public utility and maintaining power in Pakistan.
PIA: Pakistan international airlines is the national flag carrier and state
Owned enterprise of the government of Pakistan.
SSGC: Sui southern gas company is Pakistan leading integrated gas
company.
5. TYPES OF MONOPOLY
▪ Natural Monopoly: A monopoly that arises from economies of scale.
The economies of scale arise from natural supply and demand condition,
and not from government action.
▪ Local Monopoly: A monopoly that exists in a limited geographic area.
▪ Regulated Monopoly: A monopoly firm whose behavior is overseen by
a government entity.
6. FEATURES OF MONOPOLY
• In the text book case of a monopoly, there is only one firm producing the good.
In the real world monopoly, such as the operating system monopoly, there is
only one firm that provides the overwhelming majority of sales.
• Because there is only one firm in a monopoly, the monopoly’s firm demand
curve is identical to the market demand curve, and monopoly firm need not to
consider what's its competitors pricing at.
• Because of this lack competition monopoly firms will make an economic profit.
This would normally cause other firms to enter the market. For this market to
remain a monopolistic one, there must be some barriers to entry.
7. AVERAGE AND MARGINAL REVENUE
UNDER MONOPOLY
In case of monopoly one firm constitutes the whole
industry. Therefore, the entire demand of the consumer for a product
faces the monopolist. Since the demand curve of the consumers for a
product slopes downward, the monopolist faces a downward sloping
demand curve.
9. PRICE AND OUTPUT UNDER MONOPOLY
IN SHORT RUN
Profit Maximizing Condition:
A firm in the short run earns maximum profit when
it meet the following conditions:
MR is equal to MC
MC curve cuts MR curve from below
Average revenue is greater than Average total cost
10. PRICE AND OUTPUT UNDER MONOPOLY
IN SHORT RUN
Profit Maximizing Condition:
11. PRICE AND OUTPUT UNDER MONOPOLY
IN SHORT RUN
Normal Profit Case:
A firm in the short run earns normal profit when it meet
the following condition:
MR is equal to MC
MC curve cuts MR curve from below
Average revenue is equal to Average total cost
12. PRICE AND OUTPUT UNDER MONOPOLY
IN SHORT RUN
Normal Profit Case:
13. PRICE AND OUTPUT UNDER MONOPOLY
IN SHORT RUN
Loss Minimizing Case:
A firm in the short run minimize loss in the following
way:
MR is equal to MC
MC curve cuts MR curve from below
Average revenue is less than Average total cost but greater
than AVC
14. PRICE AND OUTPUT UNDER MONOPOLY
IN SHORT RUN
Loss Minimizing Case:
15. PRICE AND OUTPUT UNDER MONOPOLY
IN LONG RUN
A monopoly firm will be in equilibrium in long run and will
earn economic profit if:
MR is equal to MC
MC curve cuts MR curve from below
Average Revenue is greater than Average Cost
There is no threat of new entry into the market
If there is no threat of new entry so monopolist will reduce
price and will earn only abnormal profit.
16. PRICE AND OUTPUT UNDER MONOPOLY
IN LONG RUN
LONG RUN CASE:
AC
MR
O
AR
C
MC
P
Q
17. WHY CANNOT OTHER FIRMS ENTER INTO
THIS MARKET
Factors which make it difficult for new firms to enter an industry:
18. FACTORS WHICH MAKE IT DIFFICULT FOR
NEW FIRMS TO ENTER AN INDUSTRY
▪ Economies of Scale: Economies of scale occur when increased output leads to
lower average costs. Therefore new firms, with relatively low output, will find it
difficult to compete because theirs average costs will be higher than the incumbent
firms benefiting from economies of scale.
▪ Natural Barriers: The firm has unique ability to produce what other firms can
not duplicate.
▪ Vertical Integration: Vertical integration occurs when a firm has control over
the supply and distribution of the good. For example, Wapda has control over
supply and distribution of electricity.
19. FACTORS WHICH MAKE IT DIFFICULT FOR
NEW FIRMS TO ENTER AN INDUSTRY Cont’d
▪ Being the first mover: In some industries, being the first firm to get
established gives a big advantage. Google wasn’t the first search engine, but now it
has dominated the market and is often pre-installed on browsers.
▪ Control Over Raw Material: If a has control over the resources for an
industry, they can block entry of other into the market.
▪ Patent: One way to prevent new firms from entering a market is to make entry
illegal. Patents, licenses, and other legal restrictions imposed by the government
provide some producers with legal protection against competition
20. PROBLEM FACED BY MONOPOLY FIRMS
Monopoly is a price maker that has complete control over the supply side of
the market. And as the only firm in the market, the demand curve facing
monopoly is the negatively-sloped market demand curve.
The result of monopoly's single-seller status and market control are three
notable problems:
Inefficiency
Income Inequality
Political Abuse
21. PROBLEM FACED BY MONOPOLY FIRMS
Inefficiency
The most noted monopoly problem is inefficiency. Market
control means that a monopoly charges a higher price and produces less
output than would be achieved under perfect competition.
Most indicative of inefficiency, the price charged by the
monopoly is greater than the marginal cost of production.
Monopoly produces the quantity of output that maximizes
profit by equating marginal revenue and marginal cost.
Because monopoly faces a negatively-sloped demand curve,
price is greater than marginal revenue, meaning price is also greater than
marginal cost and production is inefficient.
22. PROBLEM FACED BY MONOPOLY FIRMS
Income Inequality:
A lesser known problem with monopoly is an
inequitable distribution of income monopoly earns economic profit, consumer
surplus is transferred from buyers to the monopoly. Buyers end up with less
income and the monopoly ends up with more.
Because price is greater than marginal cost and a
monopoly receives economic profit, factor payments to some or all of the
resources used by the monopoly are greater than their contributions to
production.
A portion of this economic profit is often "paid" to the
owners of the labor, capital, or land, although not really "earned.“
Monopoly is able to maintain single-seller status and
market control, income continues to be transferred from buyers to the
monopoly and to the monopoly resource owners.
23. PROBLEM FACED BY MONOPOLY FIRMS
Political Abuse:
A third potential problem, one tied directly to the
concentration of income in the hands of the owners of monopoly resources, is
the abuse of political power.
The monopoly could use its economic profit to influence the
political process, especially policies that might prevent potential competitors
from entering the market.
A monopoly might be inclined to divert a portion of its
economic profit to government officials and political decision makers to
achieve "favorable" legislation and regulation, such as restrictions on
competition from foreign companies.
24. CONCLUSION
In conclusion, after complete these tasks, I gained
extra knowledge about the detail of monopoly and it's characteristic. In
a monopoly market only has one seller running the business in entire
market. Monopoly is only a seller but many buyers in a market. The
seller is 'price maker', he decided to set the product price and
maximize the profit. Therefore, monopoly is an absence of
competition, which often results in high prices.
