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CONTENTS Topics Meaning and definition Features or characteristics Types of monopoly Price determination under short period Price

determination under long period Price discrimination under discriminating Monopoly Types of price discrimination Conditions of price discrimination Price/output determination under discriminating monopoly Kinds of discriminating monopoly Dumping Conclusion 10 12 12 13 9 9 10 Page no. 2 2 3 3 7

MEANING
Monopoly is that situation of market in whichthere is a single seller of a product. When a monopolist charges different prices from the different consumers for the same product, itis called monopoly.

DEFINITION
A pure monopoly exists when there is only oneproducer in a market. There are no direct Competitors. Prof.Ferguson Monopoly is a market situation in which there is a single seller, there are no close substitutesfor commodity it produces, there are barriersto entry.Koutsoyiannis

FEATURES OR CHARACTERSTICS
Monopoly is also an industry Restrictions on the entry of the new firms 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

TYPES OF MONOPOLY
Pure and absolute monopoly Relative monopoly

PRICE DETERMINATION UNDER SHORT PERIOD OR SHORT RUN EQUILIBRIUM


CONDITIONS Marginal cost = marginal revenue Marginal cost curve must be cut marginal revenue curve from below A monopoly firm in equilibrium may enjoy superNormal profit, normal profit or losses in the shortPeriod. Super normal profits Normal profits Minimum loss

SUPER NORMAL PROFIT

E = MC = MR PROFIT = AC < AR A firm under monopoly will enjoy the super normal profits when AR is greater than AC. In the diagram output is shown OX and revenue cost and price are shown along OY axis. ETNF is the super normal profits.

NORMAL PROFIT

PROFIT = AR = AC E = MR = MC A firm enjoys normal profit its average revenue is equal to average cost . The equilibrium of the firm with normal profits shown in the diagram. OX axis is output and OY axis is price, cost and revenue.

LOSSES

E = MC = MR LOSS = AC > AR A firm may sustain losses when AC is greater than AR [AC>AR]. The equilibrium of the firm is shown in the diagram, OX axis is the output and OY axis is the price, cost and revenue. EHCF are the losses.

PRICE DETERMINATION UNDER LONG PERIOD OR LONG-RUN EQUILIBRIUM


Conditions Marginal cost = marginal revenue Marginal cost curve must cut marginal revenue curve from below A monopolist in the long run fixes such a pricewhich enables him to earn super normal profit. Super normal profit

SUPER NORMAL PROFIT

E = MC = MR Super normal profit = AR > AC A monopolist in the long run fixes such a price which enables him to earn super normal profits. In the diagram, output is shown an OX and revenue/ cost / price along OY axis.

PRICE DISCRIMINATION UNDER DISCRIMINATION MONOPOLY


MEANING The practice of a seller charging the differentprices from the different buyers for the sameproduct is known as price discrimination.

DEFINITION Price discrimination exists when the same product is sold at different prices to different buyers. Koutsoyiannis The act of selling the same article produced under asingle control at the different prices to the different buyers is known as price discrimination. Mrs.Robinson

TYPES OF PRICE DISCRIMINATION


Personal price discrimination Local geographical price discrimination According to use According to age

FEATURES OR DISCRIMINATION

CONDITIONS

OF

PRICE

Existence of monopoly market Two or more than two sub market Different elasticity of demand Legal sanction Behavior or attitude of the customer Ignorance of the consumer Goods by order Change in brand or quality Nature of commodity

PRICE/OUTPUT DETERMINATION OR EQUILIBRIUM UNDER DISCRIMINATING MONOPOLY


DECISIONS How much total output is to be produced? How to distribute the total output in different sub markets and to charge different prices in the different market?

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CONDITIONS
Marginal cost = aggregate marginal revenue Marginal cost = marginal revenue a = marginal revenue b

In the diagram, OX axis is the output and OY axis is the price/revenue/cost. A and B represents the A and B or total output. CMR is the aggregate marginal revenue and MC is the marginal cost.

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KINDS OF DISCRIMINATING MONOPOLY


Discriminating monopoly of first degree Discriminating monopoly of second degree Discriminating monopoly of third degree

DUMPING
Dumping is a special type of price discrimination in which monopolist fixes a higher price for his product in the home market and lower price in the foreign market so as to capture the foreign market. We examine price and output determination of such a monopolist in terms of figure:

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CONLUSION
When the large numbers of buyers but only one seller available in the market for the same product, charge the different prices then it creates the monopoly. Price discrimination is possible only under the monopoly conditions; it is not possible in perfect competition and monopolistic competition.

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