2. INTRODUCTION
A monopoly is a market structure in which there is a
single supplier of a product.
Monopolies exist because of barriers to entry into a
market that prevent competition.
The monopoly firm (monopolist):
May be small or large.
Must be the only supplier of the product.
Sells a product for which there are only close
substitutes.
3. TYPES OF MONOPOLY
Natural monopoly: A monopoly that arises from
economies of scale. The economies of scale arise from
natural supply and demand conditions, and not from
government actions.
Local monopoly: a monopoly that exists in a limited
geographic area.
Regulated monopoly: a monopoly firm whose behavior
is overseen by a government entity.
Monopoly power: market power, the power to set prices.
Monopolization: an attempt by a firm to dominate a
market or become a monopoly.
4. AVERAGE AND MARGINAL REVENUE
UNDER MONOPOLY
In the case of monopoly one firm constitutes
the whole industry. Therefore, the entire demand of
the consumers for a product faces the monopolist.
Since the demand curve of the consumers for a
product slopes downward, the monopolist faces a
downward sloping demand curve .
5. AVERAGE AND MARGINAL REVENUE
CURVES UNDER MONOPOLY
ARandMR
Quantity
Q
M
K
P
Y
AR
MR
6. CHARACTERISTICS OF MONOPOLY
There is only a single seller of a product or service
in the market .
The goods produced by a sole seller have not close
substitutes.
The entry of new firm into the industry is
effectively bared by legal or natural barriers.
The firm being the sole supplier of a product
constitutes industry. Firm and industry thus have
single identity.
7. BARRIER TO ENTRY
Anything that impedes the ability of firms to
begin a new business in an industry in which
existing firms are earning positive economic
profits.
There are general classes of barriers to entry:
Natural barriers
Technological barriers
Sociological barriers
Government (legal) barriers
8. Natural barriers – The firm has a unique ability to
produce what other firms can’t duplicate.
Technological barriers – The size of the market can
support only one firm.
Sociological barriers – Entry is prevented by custom or
tradition.
Government barriers – Governments often provide
barriers, creating monopolies. As incentives to innovation,
governments often grant patents, providing firms with legal
monopolies on their products or the use of their inventions
or discoveries for a certain period.
9. MONOPOLY PRICE DISCRIMINATION
The practice on the part of the monopolist to
sell the identical goods at the same time to
different buyers at different prices when the
price difference is not justified by in
difference in cost is called Price
Discrimination.
10. CONCLUSION
Market structure with one producer. Entry of
firm is ban unique product or no close
substitute firm is price maker The monopolist
can take the market demand curve as its own
demand curve. A monopolist therefore faces a
downward sloping.
