Amonopoly is an Enterprise That is the Only Seller of a Good or Service

8/3/2019 Amonopoly is an Enterprise That is the Only Seller of a Good or Service

1/4

A monopoly is an enterprise that is the only seller of a good or service. In the absence of governmentintervention, a monopoly is free to set any price it chooses and will usually set the price that yields thelargest possible profit. Just being a monopoly need not make an enterprise more profitable than otherenterprises that face COMPETITION: the market may be so small that it barely supports one enterprise. But ifthe monopoly is in fact more profitable than competitive enterprises, economists expect that otherentrepreneurs will enter the business to capture some of the higher returns. If enough rivals enter, their

competition will drive prices down and eliminate monopoly power.Before and during the period of the classical economics (roughly 17761850), most people believed that this processof monopolies being eroded by new competitors was pervasive. The only monopolies that could persist, they thought,were those that got the government to exclude rivals. This belief was well expressed in an excellent article onmonopoly in thePenny Cyclopedia (1839, vol. 15, p. 741):

Short Run Equilibrium of the Monopoly Firm:In the short period, the monopolist behaves like any other firm. A monopolist will maximize profit orminimize losses by producing that output for which marginal cost (MC) equals marginal revenue (MR).Whether a profit or loss is made or not depends upon the relation between price and average total cost(ATC). It may be made clear here that a monopolist does not necessarily makes profit. He may earn super

profit or normal profit or even produce at a loss in the short ran.Conditions for the Equilibrium of a Monopoly Firm:There are two basic conditions for the equilibrium of the monopoly firm.

First Order Condition: MC = MR.Second Order Condition: MC curve cuts MR curve from below.

Explanation:(a) Short Run Monopoly Equilibrium With Positive Profit:Revenue curvesThe downward sloping demand curve for the industry must also be the demand curve for the firm. This

gives the monopolist the power to be a price maker, he can set the price and then sell whatever quantityconsumers are willing to buy at that price. Rather than setting the price, he can set the quantity he wishes tosell and then accept the price the market is willing to pay.Ideally the monopolist would like to be able to sell a large quantity at a high price, however it can only setone or the other. It is because of this we say that the monopolist is constrained by the demand curve, asshown overleaf.The demand curve is relatively inelastic as there are no substitutes available.

Short run equilibrium

There are three possible outcomes, abnormal profits, normal profits and losses. Abnormal profits (AR>AC)

1
http://www.econlib.org/library/Enc/Competition.htmlhttp://www.econlib.org/library/Enc/Competition.htmlhttp://www.economicsconcepts.com/Definition_and_concept_of_monopoly.htmhttp://www.economicsconcepts.com/Definition_and_concept_of_monopoly.htmhttp://www.econlib.org/library/Enc/Competition.html


2/4

Normal profits (AR=AC)

Losses (AR less than AC).

Long run equilibriumIf losses persist in the long run the monopolist will leave the market (unless it receives a subsidy or it has anobjective other than making a profit).If abnormal or normal profits are being earned, the monopolist will remain in the market in the long run.

Unlike perfect competition, it is possible to earn abnormal profits in the long run due to the presence ofbarriers to entry, which prevent firms entering the industry and eroding the profits.Dead Weight Loss

2


3/4

Normally, the price and quantity would be at the equilibrium point, where the supply(MC) and demandcurve intersects. The price and quantity for a monopoly, however, are different. The price is higher, quantityis lower. Also, the actual price in the market is much higher than the price where MC=MR. Thus,economists would say that this kind of market is inefficient.Deadweight lossIn economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a lossofeconomic efficiency that can occur when equilibrium for a good or service is not Pareto optimal. In other

words, either people who would have more marginal benefit than marginal cost are not buying the product,or people who have more marginal cost than marginal benefit are buying the product.Causes of deadweight loss can include monopoly pricing (in the case of artificialscarcity), externalities, taxes or subsidies, and bindingprice ceilings orfloors. The term deadweight lossmay also be referred to as the "excess burden" of monopoly ortaxation.Types of MonopolyThe different types of monopoly are as follows:

1. Private monopoly:The monopoly firm owned and operate by private individuals is called the private monopoly. Theirmain motive is to make profit.

2. Public monopoly:The monopoly firm owned and operated by public or state government is called public monopoly. Itis also known as social monopoly. The entire operation is controlled either by central or stategovernment. Their main motive is to provide welfare to the public.

3. Absolute monopoly:It is a type of monopoly, where a single seller controls the entire supply of market without facingcompetition. It is also known as pure monopoly. His product does not have even any remotesubstitute also.

4. Imperfect monopoly:It is a type of monopoly in which a single seller controls the entire supply of the market which doesnot have a close substitute. But there might be remote substitute for the product available in the

market.5. Simple or single monopoly:It is a type of monopoly in which a single seller controls the entire market, by selling the commodityat a single price for all the consumer. There is no price discrimination in the market.

6. Discriminative monopoly:When a monopoly firm changes different prices for the same goods or services to differentconsumers it is known as discriminative monopoly.

7. Legal monopoly:When a firms enjoys rights like trade mark, copy right, patent right, etc. then it is known as legalmonopoly. Such monopoly rights are approved by the government.

8. Natural monopoly:When a firms enjoys monopoly right due to natural factors like location reputation earned etc, it iscalled as natural monopoly. Natural talent, skill of the producer also makes him to enjoy this right.

9. Technological monopoly:When a firm enjoys monopoly power due to technical superiority over other products in the market,then it is called as technological monopoly. For example products produced by L & T, Godrej etc.are technological monopoly.

So by explaining technological monopoly and other monopolies we have finished with the fullexplanation of different types of monopoly.

http://www.indiastudychannel.com/resources/106541-Types-Monopoly.aspxClassification / Kinds / Types of Monopoly1. Perfect MonopolyIt is also called as absolute monopoly. In this case, there is only a single seller of product having no closesubstitute; not even remote one. There is absolutely zero level of competition. Such monopoly is practicallyvery rare.2. Imperfect Monopoly

3
http://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Pareto_efficiencyhttp://en.wikipedia.org/wiki/Marginal_benefithttp://en.wikipedia.org/wiki/Marginal_costhttp://en.wikipedia.org/wiki/Monopolyhttp://en.wikipedia.org/wiki/Artificial_scarcityhttp://en.wikipedia.org/wiki/Artificial_scarcityhttp://en.wikipedia.org/wiki/Externalityhttp://en.wikipedia.org/wiki/Effect_of_taxes_and_subsidies_on_pricehttp://en.wikipedia.org/wiki/Price_ceilinghttp://en.wikipedia.org/wiki/Price_floorhttp://en.wikipedia.org/wiki/Taxationhttp://www.indiastudychannel.com/resources/106541-Types-Monopoly.aspxhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economic_efficiencyhttp://en.wikipedia.org/wiki/Good_(economics)http://en.wikipedia.org/wiki/Pareto_efficiencyhttp://en.wikipedia.org/wiki/Marginal_benefithttp://en.wikipedia.org/wiki/Marginal_costhttp://en.wikipedia.org/wiki/Monopolyhttp://en.wikipedia.org/wiki/Artificial_scarcityhttp://en.wikipedia.org/wiki/Artificial_scarcityhttp://en.wikipedia.org/wiki/Externalityhttp://en.wikipedia.org/wiki/Effect_of_taxes_and_subsidies_on_pricehttp://en.wikipedia.org/wiki/Price_ceilinghttp://en.wikipedia.org/wiki/Price_floorhttp://en.wikipedia.org/wiki/Taxationhttp://www.indiastudychannel.com/resources/106541-Types-Monopoly.aspx


4/4

It is also called as relative monopoly or simple or limited monopoly. It refers to a single seller market havingno close substitute. It means in this market, a product may have a remote substitute. So, there is fear ofcompetition to some extent e.g. Mobile (Cellphone) telcom industry (e.g. vodaphone) is having competitionfrom fixed landline phone service industry (e.g. BSNL).3. Private MonopolyWhen production is owned, controlled and managed by the individual, or private body or privateorganization, it is called private monopoly. e.g. Tata, Reliance, Bajaj, etc. groups in India. Such type ofmonopoly is profit oriented.

4. Public MonopolyWhen production is owned, controlled and managed by government, it is called public monopoly. It iswelfare and service oriented. So, it is also called as 'Welfare Monopoly' e.g. Railways, Defence, etc.5. Simple MonopolySimple monopoly firm charges a uniform price or single price to all the customers. He operates in a singlemarket.6. Discriminating MonopolySuch a monopoly firm charges different price to different customers for the same product. It prevails in morethan one market.7. Legal MonopolyWhen monopoly exists on account of trademarks, patents, copy rights, statutory regulation of government

etc., it is called legal monopoly. Music industry is an example of legal monopoly.8. Natural MonopolyIt emerges as a result of natural advantages like good location, abundant mineral resources, etc. e.g. Gulfcountries are having monopoly in crude oil exploration activities because of plenty of natural oil resources.9. Technological MonopolyIt emerges as a result of economies of large scale production, use of capital goods, new production methods,etc. E.g. engineering goods industry, automobile industry, software industry, etc.10. Joint MonopolyA number of business firms acquire monopoly position through amalgamation, cartels, syndicates, etc, it

becomes joint monopoly. e.g. Actually, pizza making firm and burger making firm are competitors of eachother in fast food industry. But when they combine their business, that leads to reduction in competition. So

they can enjoy monopoly power in market.http://kalyan-city.blogspot.com/2010/11/monopoly-market-structure-meaning.html

4
http://kalyan-city.blogspot.com/2010/11/monopoly-market-structure-meaning.htmlhttp://kalyan-city.blogspot.com/2010/11/monopoly-market-structure-meaning.html

Documents

Amonopoly is an Enterprise That is the Only Seller of a Good or Service