Description
Describes about main factors of monopoly, what are the main factors that lead to monopoly.
Monopoly
Monopoly
?A
monopoly has only one seller, who is able to influence the total supply and price of the goods and services. Further, there are no close substitutes for the goods produced by the monopolist and there are barriers to entry. ? This single seller represents the entire Industry. ? Hence, this firm is called as a Price Maker.
Main factors that lead to monopoly are:
Ownership of strategic raw materials and exclusive technical know-how ? Possession of product/process patent rights ? Acquisition of government license to procure certain goods ? High entry costs ? Governments themselves produce some commodities to avoid consumer exploitation
?
Monopoly
Average and marginal revenue under monopoly
Revenues for a firm facing a downward-sloping demand curve
Q (units) 1 2 3 4 5 6 7 P = AR (Rs) 8 7 6 5 4 3 2 TR (Rs) 8 6 14 4 18 2 20 0 20 –2 18 –4 14 MR (Rs)
Revenues for a firm facing a downward-sloping demand curve
Q (units) 1 2 3 4 5 6 7 P = AR (Rs) 8 7 6 5 4 3 2 TR (Rs) 8 6 14 4 18 2 20 0 20 –2 18 –4 14 MR (Rs)
Revenues for a firm facing a downward-sloping demand curve
Q (units) 1 2 3 4 5 6 7 P = AR (Rs) 8 7 6 5 4 3 2 TR (Rs) 8 6 14 4 18 2 20 0 20 –2 18 –4 14 MR (Rs)
AR and MR curves for a firm facing a downward-sloping D curve
8
Q P =AR (units) (Rs) 8 1 7 2 6 3 5 4 4 5 3 6 2 7
6
AR, MR (Rs)
4
2
AR
0 1 -2 2 3 4 5 6 7
Quantity
-4
AR and MR curves for a firm facing a downward-sloping D curve
8
Q P =AR (units) (Rs) 8 1 7 2 6 3 5 4 4 5 3 6 2 7 TR (Rs) 8 14 18 20 20 18 14 MR (Rs)
6 4 2 0 -2 -4
6
AR, MR (Rs)
4
2
AR
0 1 -2 2 3 4 5 6 7
Quantity
-4
MR
Elasticity and slope are related but different conceptually
On a graph, independent variable is always on the x axis and the dependent variable is on the y axis. ? Y = f (X) ? But in the graphs of demand and supply we take the dependent variable on the x axis and the independent variable on the y axis. ? Q = f (P) ? Slope of a curve keeps on changing as the curve changes but the slope of a straight line is always constant. ? Slope = change in y / change in x
?
PercentageChange in Quantity Demanded Price Elasticity of Demand = PercentageChange in Price
change in Q / Q = ---------------------------Change in P / P
=
Q P P
P Q P
=1
=1
Slope
P Q
Q
Q
On a straight line demand curve, slope remains constant but , elasticity goes on changing.
? Elasticity
at a point on a straight line demand curve can be calculated as follows : ? e = lower segment / upper segment. ? At the midpoint of the demand curve e=1 ? At all points above the midpoint e >1 ? At all points below the midpoint e < 1
AR and MR curves for a firm facing a downward-sloping D curve
8
Elastic
6
Elasticity = -1
AR, MR (Rs)
4
Inelastic
2
AR
0 1 -2 2 3 4 5 6 7
Quantity
-4
MR
Elastic Unit elastic Inelastic Price
(a) Demand and marginal revenue
price elastic, as p falls MR>0, TR increases price inelastic, as p falls MR
Describes about main factors of monopoly, what are the main factors that lead to monopoly.
Monopoly
Monopoly
?A
monopoly has only one seller, who is able to influence the total supply and price of the goods and services. Further, there are no close substitutes for the goods produced by the monopolist and there are barriers to entry. ? This single seller represents the entire Industry. ? Hence, this firm is called as a Price Maker.
Main factors that lead to monopoly are:
Ownership of strategic raw materials and exclusive technical know-how ? Possession of product/process patent rights ? Acquisition of government license to procure certain goods ? High entry costs ? Governments themselves produce some commodities to avoid consumer exploitation
?
Monopoly
Average and marginal revenue under monopoly
Revenues for a firm facing a downward-sloping demand curve
Q (units) 1 2 3 4 5 6 7 P = AR (Rs) 8 7 6 5 4 3 2 TR (Rs) 8 6 14 4 18 2 20 0 20 –2 18 –4 14 MR (Rs)
Revenues for a firm facing a downward-sloping demand curve
Q (units) 1 2 3 4 5 6 7 P = AR (Rs) 8 7 6 5 4 3 2 TR (Rs) 8 6 14 4 18 2 20 0 20 –2 18 –4 14 MR (Rs)
Revenues for a firm facing a downward-sloping demand curve
Q (units) 1 2 3 4 5 6 7 P = AR (Rs) 8 7 6 5 4 3 2 TR (Rs) 8 6 14 4 18 2 20 0 20 –2 18 –4 14 MR (Rs)
AR and MR curves for a firm facing a downward-sloping D curve
8
Q P =AR (units) (Rs) 8 1 7 2 6 3 5 4 4 5 3 6 2 7
6
AR, MR (Rs)
4
2
AR
0 1 -2 2 3 4 5 6 7
Quantity
-4
AR and MR curves for a firm facing a downward-sloping D curve
8
Q P =AR (units) (Rs) 8 1 7 2 6 3 5 4 4 5 3 6 2 7 TR (Rs) 8 14 18 20 20 18 14 MR (Rs)
6 4 2 0 -2 -4
6
AR, MR (Rs)
4
2
AR
0 1 -2 2 3 4 5 6 7
Quantity
-4
MR
Elasticity and slope are related but different conceptually
On a graph, independent variable is always on the x axis and the dependent variable is on the y axis. ? Y = f (X) ? But in the graphs of demand and supply we take the dependent variable on the x axis and the independent variable on the y axis. ? Q = f (P) ? Slope of a curve keeps on changing as the curve changes but the slope of a straight line is always constant. ? Slope = change in y / change in x
?
PercentageChange in Quantity Demanded Price Elasticity of Demand = PercentageChange in Price
change in Q / Q = ---------------------------Change in P / P
=
Q P P
P Q P
=1
=1
Slope
P Q
Q
Q
On a straight line demand curve, slope remains constant but , elasticity goes on changing.
? Elasticity
at a point on a straight line demand curve can be calculated as follows : ? e = lower segment / upper segment. ? At the midpoint of the demand curve e=1 ? At all points above the midpoint e >1 ? At all points below the midpoint e < 1
AR and MR curves for a firm facing a downward-sloping D curve
8
Elastic
6
Elasticity = -1
AR, MR (Rs)
4
Inelastic
2
AR
0 1 -2 2 3 4 5 6 7
Quantity
-4
MR
Elastic Unit elastic Inelastic Price
(a) Demand and marginal revenue
price elastic, as p falls MR>0, TR increases price inelastic, as p falls MR