1. MONOPOLY
Submitted To :
Dr. Ashish Pareek
Presented By :
Anuj Kr.Sharma
Brajesh Rawat
Dumpy S. Chauhan
Prateek S.Rathore
Sachin Kheradiya
Tarun S. Gahlot

2. MONOPOLY

The Word Monopoly is a Latin Term. „Mono‟ means
Single and „Poly‟ means Seller.

Monopoly is a form of Market Organization in which
there is only One Seller of the Commodity.

There are No Close Substitutes for the
Commodity sold by the Seller.

Example : Indian Railways
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3. DEFINITIONS
According To Koutsoyiannis ,
“Monopoly Is a Market Situation in Which There is A
single Seller, There are no close substitutes for commodity it
produces ,there are barriers to entry.”

According To Baumol ,
“ A pure Monopoly is defined as the firm that is also an
industry. It is the only supplier of some particular commodity
for which there exist no close substitutes.”

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4.  True monopolies generally exist in government
controlled markets.
 Ex. : Indian railway
 Monopoly in private business is rare.
 Private firms who have considerable market
share.
Like : Google
Microsoft
Apple
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5. FEATURES OR ASSUMPTIONS OF MONOPOLY

One seller and large number of Buyers.

Monopoly is also an Industry.

Restrictions on the Entry of the New Firms.

No close Substitutes.

Price Maker.

Price Discrimination.

Downward Sloping Demand Curve.
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6. CAUSES AND SOURCES OF MONOPOLY POWER

Control over Raw Materials or Ownership of Natural Resources.

Patents.

Technical Barriers.

Government Policy.

Historical and Entry Lag.

Limit-Pricing Policy or Unfair Competition.

Capital Size.
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
Business Mergers.

7. TYPES OF MONOPOLY

Natural monopoly,

Geographic monopoly,

Technological monopoly,

Government monopoly,
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8. TYPE OF BARRIERS TO ENTRY
 Institutional
barriers to entry.

Exclusive franchising

Licences

Patent protection
 Technical
barriers to entry.

Unique resources

Economies of scale and scope

Economy of experiences
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9. TYPE OF BARRIERS TO ENTRY
 Strategic
barriers to entry.
 Limit
pricing
 Excess
capacity
 Product
differentiation (brand
proliferation)
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10. MONOPOLY
V/S
PERFECT COMPETITION
Perfect competitive Firm
Is one of many producers
Monopoly
 Is the sole producer
Has
 Has
a horizontal demand
curve
Is
a price taker
Sells
as much or as little
at same price
a downward-sloping
demand curve
 Is
a price maker
 Reduces
price to
increase sales
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11. (b) A Monopolist’s
Demand Curve
(A)Perfect competitive
Firm
Price
Price
Demand
Demand
0
Quantity of
Output
0
Quantity of
Output
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12. DEMAND AND REVENUE UNDER
MONOPOLY






In a monopoly situation, there is no difference between firm &
industry.
Under monopoly situation, firm‟s demand curve also
constitutes industry‟s demand curve.
Demand curve of the monopolist is also average revenue
curve.
It slopes downward. It means if the monopolist fixes high
price, the demand will shrink or decrease. On the contrary, if
he fixes low price, the demand will expand or increase.
Under monopoly, average revenue and marginal revenue
curves are separate from one another. Both slope downwards.
Fig.1 will show average revenue (demand) curve & marginal
revenue curve. Both are sloping downward. Marginal revenue
curve is below average revenue or demand curve.
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13. DEMAND AND REVENUE UNDER
Y
MONOPOLY
A
Demand curve of the
monopolist is also average
revenue (ARC) curve. It
slopes downward. It means
if the monopolist fixes high
price, the demand will
shrink.
E > 1 Increase In TR
Revenue

P
E=1 (TR Maximum)
L
N
E<1 (Decrease inTR)
D = Average Revenue
O
Marginal revenue
Q
X
OUTPUT

Demand rises with fall in price(AR)

At point „N‟ , total revenue will be maximum.( i.e. ,TR = P x Q)

Average revenue is never zero, but marginal revenue may be
zero or even negative

At OP price, the monopolist will produce OQ quantity of
output, because this price affords him maximum total revenue.
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14. PRICE DETERMINATION UNDER SHORT RUN
A Monopolist in Equlibrium may face any of Three
Situations in the Short period .
1.
Super Normal Profit
2.
Normal Profit
3.
Minimum Loss
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15. SUPER NORMAL PROFIT
In This Figure ,The
Monopolist is in
equilibrium at point E .
 Because at this point
MC=MR .
 The Monopolist Produces
OM Units & sell it at AM
price
 Thus in this Situation the
super normal profit of the
monopolist will be ABCD

Y
MC
AC
A
C
B
D
E
AR
MR
O
M
OUTPUT
X
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16. NORMAL PROFIT





In This Figure ,The Firm is in
equilibrium at point E .
Where MC=MR & OM is the
equilibrium output .
At this output AC Curve
Touches Average
Revenue(AM) curve at point
A.
At point „A‟ price OP (AM) is
equal to the average Cost of
the product .
Therefore firms earn only
normal profit in equilibrium
situation as at equilibrium
output its AC=AR
MC
Y
AC
A
P
E
AR
MR
O
M
OUTPUT
X
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17. MINIMUM LOSS





In this Figure , The monopolist
is in equilibrium at point E ,
Where MC=MR & produces
OM output.
The price of equilibrium output
OM is fixed at OP1 (AM).
At this Price The Average
Variable Cost(AVC) Curve
Touches AR curve at point „A‟.
At this situation the firm will
get only AVC from the
Prevailing Price
.The firm will bear the loss of
fixed cost , AN per Unit.
Y
MC
AC
P
P1
N
Loss
A
AVC
E
AR
O
MR
M
X
OUTPUT
The firm will bear total loss equivalent to NAP1P as shown
by the shaded area.
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18. PRICE DETERMINATION UNDER LONG RUN




In the Figure ,Point E Indicates
the equilibrium of the
monopolist .
At Point E, MR = LMC . Hence
OM is the equilibrium Output &
ON (=AM) is the equilibrium
Price.BM is the long run
average cost.
Price (Average Revenue ) AM
is being more than long run
average cost (AR > LAC), the
Monopolist earn (AM –BM
=AB) Super Normal Profit Per
Unit.
The Firm‟s Super Normal Profit
will be ABPN as Shown by
Shaded Area
Y
A
N
LMC
LAC
B
P
E
O
AR
M
MR
OUTPUT
X
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19. 
BOOKS :


MICRO ECONOMICS .
 T.R. Jain
 O.P. Khanna
 Ajay Tiwari
INTERNET :
www.slideshare.net/
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