There is a single seller of a product with no close substitutes and barriers to entry in a monopoly market. A monopoly is characterized by a single firm that is both the industry and controls the supply of the product, allowing it to be a price maker. Barriers that can cause monopolies include controlling raw materials, patents, large capital requirements, government licenses, and mergers eliminating competitors. Under monopoly, the firm's demand curve is also the industry demand curve and equals the average revenue curve, both of which slope downward. The marginal revenue curve also slopes downward and lies below the average revenue curve.
2. Meaning
Features
Causes OR Sources
Demand & Revenue
under Monopoly
Cost under
Monopoly
MR & MC Analysis
Price determination
under short period
Or short-run
equilibrium
Determination of
long-run price Or
long-run equilibrium
3.
Monopoly is that situation of market in which there is a single seller of a
product & large no. of buyers.
Monopoly is the combination of two words single (Mono) firm controls
(poly) the production of a commodity.
Monopoly is a market situation in which there is only one producer of a
commodity with no close substitute.
Examples of Monopoly :-
There is only one firm dealing in the sale of cooking gas in your town.
You travel by railway train owned and run by government of India.
You get your electricity supply from one agency, that is, State Electricity
board
4. 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. “
In the words of prof. ferguson, “A pure monopoly
exists when there is only one producer in a
market, there is no direct competitors.”
5. under Monopoly
there should be a one producer of the commodity. He
may be a sole proprietor or there may be a group of
partners or a joint-stock company or a state. Thus,
there is only one firm in monopoly & there is no
distinction between firm and industry, but the buyers of
product in a large number.
:- Under monopoly situation,
there is only one firm and the and the difference
between firm & industry disappears.
:- In the
words of J.S.Bains, “A firm assumes monopoly situation
when it has no close rival.” There are some restrictions
on the entry of new firms into monopoly industry.
6.
No close substitute :- The commodity produced by the
firm should have no close substitute, otherwise the
monopolist will not be able to determine the price of his
commodity.
Price maker :- A monopolist has full control over the
supply of the commodity. On the other hand, there are
large no. of buyers, but the demand of a single buyer,
constitutes only a small portion of the total marker
demand. Hence, the buyers have to pay the same price as
fixed by the monopolist.
In other words, price of the commodity is fully under the
control of monopolist. In the case, the monopolist
increases the supply of the commodity, the price of it will
fall. If he reduces the supply, the price of it will rise.
7. a)
Control over raw material :- A firm may control the
total supply of raw material that is essential in the
production of some product. By controlling the key raw
material or natural resources a firm can monopolies the
industry and keep new competitors out.
b)
Patents :- A patent is an exclusive right granted by the
government to use some productive technique or to
produce a certain product. Patents give the sole right to
patent holder to produce a particular product.
c)
Technical barriers :- The technical barriers to entry
are also responsible for monopoly. The principal technical
barrier is the scale of production. The production of a
particular commodity may exhibit decreasing marginal &
average cost over a wide range of output levels so that it
becomes profitable to produce only at a large scale.
8.
Government policy :- The government may grant a license
Capital size
to a firm to have the exclusive privilege to produce a given
good or service in a particular area. No firm can enter into
that area without a license provided by the government.
These licenses is awarded in case of public utility, like
electricity, gas, telephones and variety of other situations.
:- Monopoly may also be caused due to the
huge amount of capital required to establish a particular
productive unit. The supply of commodity may involve the
use of such a vast amount of capital equipment that new
competitors are effectively excluded from entering the
market.
Business mergers :- the status A firm may acquire
monopoly simply by buying out it rivals. It merges with
them to get a high combined market share for the new
larger firm. Once unified, the former competitors no
longer compete with one other & acquire of monopoly.
9.
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.