Professional Documents
Culture Documents
Example
The margin of safety is also an important figure because it shows how safe the business is in
producing products. For example, assume a manufacturer calculates its breakeven to be 100
units. Based on its sales projections, the company anticipates selling 150 units during the next
quarter. The margin of safety on this product is 50 units.
5. Monopoly
Monopoly is an extreme form of market structure. The word monopoly is derived from two
Greek words-Mono and Poly. Mono means single and Poly means 'seller'. Thus monopoly
means single seller. Monopoly is a firm of market organization for a commodity in which
there is only one single seller of the commodity.
As monopoly is a form of imperfect market organization, there is no difference between firm
and industry. A monopoly firm is said to be an industry. Thus monopoly means the absence of
competition. There are strong barriers to entry into the industry. As a result, seller has full
control over the supply of the commodity.
Features of Monopoly:
1. One seller and large number of buyers:
Monopoly is a form of imperfect market structure where there is only one seller of a product.
A monopoly firm may be owned by a person, a few numbers of partners or a joint stock
company. The characteristic feature of single seller eliminates the distinction between the
firm and the industry. A monopolist firm is itself 'the industry. Under monopoly there are
large numbers of buyers although the seller is one. No buyer's reaction can influence the
price.
2. No close substitute:
Under monopoly a single producer produces single commodities which have no close
substitute. As the commodity in question has no close substitute, the monopolist is at liberty
to change a price according to his own whimsy. Monopoly can not exist when there is
competition.
A firm is said, to be monopolist only when it is the single producer and supplier of the
product which have no close substitute. Under monopoly the cross elasticity of demand is
zero. Cross elasticity of demand shows a change in the demand for a good as a result of
change in the price of another good.
3. Strong barriers to the entry into the industry exist:
In a monopoly market there is strong barrier on the entry of new firms. Monopolist faces no
competition. As there is one firm no other rival producers can enter the market of the same
product. Since the monopolist has absolute control over the production and sale of the
commodity certain economic barriers are imposed on the entry of potential rivals.
4. Nature of demand curve:
In case of monopoly one firm constitutes the whole industry. The entire demand of the
consumers for a product goes to the monopolist. Since the demand curve of the individual
consumers lopes downward, the monopolist faces a downward sloping demand curve.
A monopolist can sell more of his output only at a lower price and can reduce the sale at a
high price. The downward sloping demand curve expresses that the price (AR) goes on
falling ns sales are increased. In monopoly AR curve slopes downward mid MR curve lies
below AR curve. Demand curve under monopoly la otherwise known as average revenue
curve.
6. Mark-up Pricing
The practice of adding a constant percentage to the cost price of an item to arrive at its selling
price.
Markup pricing is a strategy in which a company first calculates the cost of the product, then
adds a proportion of it as mark-up.
Mark-up pricing ensures a seller against unpredictable or unexpected later costs.
Even if a firm handles many products, this approach provides the means by which fair prices
can be easily found.
Price increases can be justified in terms of cost increases
Disadvantages of Markup Pricing
Disadvantages of this strategy include:
Provides incentive for inefficiency
Tends to ignore the role of consumers
Tends to ignore the role of competitors
Uses historical rather than replacement value
Sales
Cost of sales
Gross Profit
Overheads
Total Overheads
Miscellaneous income
Net Profit
http://www.jbdon.com/cost-concepts-and-analysis-i.html
How does the equilibrium of the firm under perfect competition differ from
that of
a monopolist?
http://www.economicsdiscussion.net/monopoly/monopoly-and-perfect-competitiondifference/7250
Profit Maximisation is the only aim of business do you agree? Explain.
When a firm applies profit maximization, it is basically saying that its primary focus is on
profits, and it will use its resources solely to get the biggest profits possible, regardless of the
consequences or the risk involved. Profit maximization is a generally short-term concept.
Application usually lasts less than one year, although some companies employ this strategy
exclusively, constantly jumping on the next big trend.
http://www.managementguru.net/is-profit-maximization-an-appropriate-goal/
http://www.yourarticlelibrary.com/firm/5-major-objectives-that-a-firm-wants-toachieve-apart-from-earning-profit/7492/
http://www.humanresourcesiq.com/hr-management/articles/the-purpose-of-business-isnot-to-make-a-profi/
Define trade cycle: Explain the various phases of a trade cycle.
http://studypoints.blogspot.in/2011/05/what-is-trade-cycle-and-describe-its_2385.html
http://kalyan-city.blogspot.in/2011/06/4-phases-of-business-cycle-in-economics.html
http://www.yourarticlelibrary.com/microeconomics/trade-cycle-4-phases-of-a-tradecycle-explained/25993/
Explain the various types of price elasticity of demand. Discuss the factors on
which the elasticity of demand depends.
http://wikieducator.org/Elasticity_of_Demand
http://accountlearning.blogspot.in/2014/01/determinants-of-elasticity-ofdemand.html
Describe the concept of Break Even Point and point out the assumption while
constructing Break Even Chart.
http://www.yourarticlelibrary.com/economics/the-break-even-analysis-explainedwith-diagrams-economics/29085/
Discuss the different methods of pricing a product and state the method that
would be adopted by a firm under monopolistic competition.
http://www.yourarticlelibrary.com/managerial-economics/8-types-of-pricingstrategies-normally-adopted-by-firms-economics/29028/
Describe the concept of economic welfare, and its relationship with National
Income of a country.
http://www.psnacet.edu.in/courses/MBA/economics%20notes/4.pdf