Tnx group 15 For downloading this contact- bikashkumar.bk100@gmail.com Prepared by Students of University of Rajshahi MD: AL AMIN SAIFUL ISLAM RUKSANA PARVIN RUPA SHAMIM MIA LIMA AKTER

1. PRESENTATION SESSION
MICRO ECONOMCS
COURSE NO : 110
DEPARTMENT OF AIS, UNIVERSITY OF RAJSHAHI

2. MEANING OF MONOPOLY
The monopoly is that market form in which a single producer
controls the whole supply of a single commodity which has no close
substitutes.

3. BASES OF MONOPOLY;
BARRIERS TO THE ENTRY OF
RIVALS
It is noteworthy that monopoly can exist only when there are strong
barriers to the entry of rivals . In general , the persistence of profits
above the normal shows the lack of freedom of entry of others farms.
The monopolist can maintain his position as the sole producer or
seller of a product only when certain circumstances keep the rivals
away from his line of production. These barriers also explain the
existence of oligopoly. But in the case of a monopoly, the barriers to
entry are so great and strong that they block all other producers from
entering in the field of production of the monopolist.

4. BARRIERS OF MONOPOLY
Barriers are two types:
a. Economic in nature
b. Entry is institutional or else artificial in nature
Economic in Nature: in a given industry or in a given
area, the consumers can best be served by a single firm and it is
not profitable or other firms to enter the field of the monopolist.
The total market is not big enough to permit even one firm to
operate at the optimal scale of output. Until a firm reaches this
optimal scale , it is operating in its range of “ decreasing costs”.
That is , by increasing output it can cut its cost per unit
produced . Such reductions in costs are descrived as the “
economies of large-scale of production”.

5. BARRIERS OF MONOPOLY
Entry is institutional or else artificial in nature
:
1. A firm may enjoy the exclusive ownership or control of the raw
materials which are absolutely essential in making the product,
and prohibiting the creation of rival firms.
2. By granting an inventor the exclusive right or control a product for
some years , patent laws protect an inventor from the competition
of rivals.
3. The entry of new competitors may be blocked or the rivals may be
eliminated by aggressive cut-throat tactics of the monopolist.
The above listed barriers to entry are seldom effective cent per cent
and , therefore, monopoly is rare phenomenon. With these points in
mind , let us analysis how price-output equilibrium is stablished in

6. PRICE OUTPUT
DETERMINATION UNDER
MONOPOLY
Price output analysis in the case of a monopoly is also an analysis of
the equilibrium of the firm and industry under monopoly.
Since in a monopoly, a single firm constitutes the whole industry ,
there is no need for a separate analysis of the equilibrium of the firm
and of industry, as is done in case of perfect competition . Also , the
price output equilibrium of the firm will mean the price and output
determination under monopoly.

7. EQUATING MARGINAL
REVENUE AND MARGINAL
COST CURVE
Profits
P`
Y
O X
AR
ACMC
MR
P
T L
E
M
Revenue/Cost
Out-put
PRICE-OUTPUT EQUILIBRIUM UNDER
MONOPOLY

8. MONOPOLY PRICE AND
ELASTICITY OF DEMAND CURVE
Y
T
P
O
M
MR AR
T’ X
P’
REVENUE
OUTPUT
Monopoly Equilibrium when MC is Zero

9. Losses in Monopoly Market
• It is rare that a monopolists may be incurring losses.This is possible only when
affirm is new , product is in introductory position. People may not be knowing
about the product. Even monopolist may incur losses when the cost are more
and demand is lower.
Y
S
O
P
Q X
E
T
N
MC AC
AR
MR
E=MC=MR
Price
Quantity

10. Long Run adjustment Under Monopoly
• An industry operating under perfect competition makes in the long run, by
the entry of new firms on exit of old firms and attains an equilibrium
position. But under monopoly the entry of new firms is blocked in several
ways.
The monopolist may control of some essential raw materials.
or , he may hold some patents.
or, the market may be too limited to give scope for profit to more firms.

11. Long Run adjustment Under Monopoly
• If the monopolist is incurring a loss in the short run and there is no plant size that
can earn profit, then in the long run the monopolist will go out of business. If he is
already making a profit, then in the long run he will try to see if he can increase his
profit by varying the size of the plant. A miulti-plant monopolist will in the long run
adjust the number of plants to attain a long run equilibrium.The monopolist can in
the long run constract each plant of such a size that short an average cost coinsides
with long run average cost at the minimum find on the latter curve. In other words
he can increase output by constructing more plants of suitable size instead of
producing units per plant at a higher unit cost.

12. Difference between Competition and
monopoly
• Under monopoly price set higher and output smaller then under perfect
competition.
O M L
N
P
Y
Q
S
MR
D(AR)
X
S(MC)
T
E
Quantity/output
Revenue/cost

13. Regulation Of Monopoly
• A monopoly is a suspect in the eye of public or law. He generally exploits the
consumers.All governments , therefore consider it necessary to curb this
profit making tendency in the interest of the consumers and the community
at large .
• There are two common methods:
1. Price regulation
2. Taxation

14. Price Regulation
O M
P
T
D
Q
S
L
MR
D(AR)
X
MC
F
output
Price
N
AC

15. Meaning of price
discrimination
We have assumed that monopolist charges only one price from all the
purchases of his commodity. This is generally not the case the monopolist can
and some monopolists do charge different prices for the same commodity from
different people provided these people from different markets belong to what
are called non-competing groups. This is known as price discrimination or
discriminating monopoly.

16. Types of price discrimination
 Price discrimination may be (a) personal (b)local (c)
according to trade or use.
 It is personal when different price are charged from
different persons. It is local when price varies according to
locality . Discrimination is according to use when different
price are charged according to the uses to which the
commodity is put , electric current is usually sold cheaper
for industrial uses than for domestic purposes .

17. Degrees of price discrimination
 According to Prof. A.C . Pigou , there are three degrees of discrimination as under-
1) Price discrimination of the first degree in which the monopolist charges a different price
for each unit of the commodity sold .He charges the maximum that each buyer is able and
willing to pay , leaving him to consumers surplus . Obviously this involves maximum
exploitation of the buyers . This is known as price discrimination .
2) Instead of setting price for each buyer as in the first degree discrimination, in the
second degree the buyers are dividend into groups and form each group a different price
is charged , which is the lowest demand price for the group .Say X are sold at x price , all
units with demand price greater than Y but less than x are sold at Y, and so on such a
price discrimination is possible . The demand of each individual buyer is perfectly inelastic
.

18. Condition of price discrimination
 The essence of price discrimination is that the monopolist can charge different customers different
prices al though there is no fundamental difference between the goods offered to the different
customers.
 When price discrimination is possible?
 As already mentioned , a monopolist can practice price discrimination by dividing his market into
sub-market and charging different prices in the monopolist can keep these sub-markets absolutely
separate . According to PIGOU , “There are two main conditions for this purpose:- First , it should
not be possible to transfer any unit of the commodity from one sub-market cannot resold in the
dearer market , otherwise monopolists purpose will be defeated.
 Secondly, it should not be possible for buyers in the dearer market to sneak into the cheaper
market to take advantage of low price.

19. Y Market A Y Market B Y Total Market
O M1 X O M2 X O M
X
Output (a) Output (b) Output (c)
Price Output Equilibrium under discriminating monopoly
Price
E` E” AR”
P1
MR` AR` MR” CMR
E
MC
Price –output Equilibrium in Discriminating Monopoly
p1
P’’
P’
price
price
x

20. Price discrimination and output
– Will the output in a discriminating monopoly be more or less than
in a simple monopoly ? When the elasticity of demand in the two
markets are different it will be found that marginal revenue from
the sale of a unit of output will be more . Where the elasticity is
higher than where it is low . It will be therefore profitable to reduce
the output and raise the price where the elasticity is low and
increase the output and lower the price where the elasticity of
demand is high. In this way , the marginal revenue in the two
markets will be equalized.

21. Price discrimination and output
– But will the output on the whole increase, or decrease or remain the same?
Mrs. Robinson gives the answer .”It is possible to established the fact that total
output under discrimination will be greater or less than under simple monopoly
according as the more elastic of the demand curves in the separate market is
more or less concave than the less elastic demand curves are straight lines, or in
any other cause in which the concavities are equal.

22. Price discrimination by dumping
– When discriminating takes the form of dumping it is regarded as an obnoxious practice. Dumping
occurs when producers (usually monopolist) of one country sell their goods in another country at
a price below these charge from the consumers in the country of origin. In same cases , it may
pay a monopolist to sell his commodity in the foreign market below even his cost of production .
– The monopolist may have several motives for dumping :
(a) To dispose of an over-stock casually produced due to wrong judgment of demand .
(b) To develop new trade connections by charging low price.

23. (c) To drive competitors out of the foreign market whether foreigners or native producers.
And
(d) To reap economics of large-scale production .
Effect of price discrimination
From the analysis of price output equilibrium under discriminating monopoly we find-
(a) It increase the power of the producer .
(b) It gives the monopolist higher profits ;
(c) The total output is larger than under simple monopoly.

24. Is Price Discrimination Beneficial to Society?
– No straight simple answer may be given to this question. Price discrimination can be
beneficial in some cases, where as it may be detrimental in other cases.
– In certain cases price discrimination may be to the advantages to the poor
community, for instance, when a particular service may be very useful to the
community. If the price fixed low enough for the poorer classes, the will be helpful
from it. Such as a doctor takes his fee lower of taka from the poor people and takes
higher amount of taka from the rich people. IN this sector price discrimination
beneficial to society.

25. Monopoly Power
Monopoly power means that the amount of discreation which the
monopolist possesses or the intensity of competition which affects
him in shaping his policy with regard to the output and the price of
his product and to differentiation of his production by quality and
service.

26. Measurement of monopoly power
Now let us see how monopoly power can be measured.There are different ways
of measuring monopoly power :
Excess of price over marginal cost:
A.P learner has given the following formula for the measurement of his
monopoly power –
Measurement of monopoly power
=
= 0
P-MC
P
MC-MC
P
p
0
=
=

27. Criticism of monopoly
• People look at monopolies with suspicious eyes because it is thought
that monopoly involves exploitation of the consumers. Because of their
antisocial consequences, governments have taken steps to control and
regulate monopolies so as to compel then to work in public interest that
monopolist find it possible and profitable to restrict output and charge
higher prices then would the competitive producers .
• The monopolist may through advertisement and sale promotion
measures , enlarge the demand for his products and even may make the
demand less elastic by convincing the people of the desire ability , may
the indispensability of his product .

28. Criticism of monopoly
• Finally it is argued that monopoly creates unemployment . As
explained before , monopoly restricts output to raise the price.
When output is smaller fewer men will be employed. Hence,
retrenchment and unemployment . In other words monopoly
equilibrium is equilibrium with excess capacity: which means that
there is under utilization of resources.