MONOPOLY OF INDIAN RAILWAY

Presented ByNAWNIT KUMAR

CONTENTSWhat is monopoly?Characteristic of monopolyWhy barriers to entry? Monopoly Equilibrium Break even pointProfit in monopolyLoss in monopolyMeasuring monopoly powerIndian RailwayPrice maker

What is monopoly? Monopoly is a form of market structure in

which a single seller or firm has control over the entire market supply, as there are no close substitutes for his product.

For example:- Indian Railway is a public monopoly industries

Characteristic of monopolyOnly one seller and many buyers

No substitute

Price maker

Entry barriers:- There are legal, technological, economical or natural obstacles, which may block the entry of new firm.

Why barriers to entry?(1)Legal Barriers:- patent - grant of an exclusive right to use a

specific process or produce a specific product for a period of time.

licenses and franchises - permission, granted by a government, to enter an industry or occupation.

(2)Control of an essential resource:- It is essential because to protect country or social welfare. For example- arm and ammunition industries, uranium refining company….

DeBeers controls the world’s diamond trade.

(3) Economies of Scale:-Costs per unit in an industry may be low only when a firm produces a lot of output.

Consequently, small firms will be unable to enter the industry because costs are too high.

Monopoly Equilibrium

Equilibrium point MR=MC

Break even point

BP

Q

Profit in monopoly

AR=DemandAR=Demand

Profit areaA

B

E

Loss in monopoly

AR=Demand

Q

P1

P2

Measuring monopoly power Lerner’s measure:- difference between price

and marginal cost measures the degree of monopoly.

A/c to him, “degree of monopoly power is

the reciprocal of the price elasticity of demand”.

Degree of monopoly power = (P – MC) = 1 P

e

Indian RailwayIndian Railways (IR) is largest railway system

in Asia and the second largest in the World.

The railways cover a total length of 63,940 km. IR operates more than 14,244 trains daily, including about 8,002 passenger trains.

(Rupees in crore)

PROFIT

Price makerEvery year, Indian railway minister give

railway budget.According to 2011 railway budget-Concession for male senior citizens has been

increased by 10% to 40%no increase in freight rate.Reduction in AC1 - 7% and AC2 - 4% 5% discount across board for passenger fare

beyond Rs50 for all suburban second class.

Its motive not only profit maximization but also social welfare .