Question

““Monopolist is a person, group or organization with a monopoly. In other words, an individual or company that controls all of the market for a particular good or service.”

Your task is to write a paragraph explain in details, how the producer, in Monopoly, can determine the Price-Quantity combination that will lead to maximum profit?

(introduction, body text and conclusion)

1. Define the market structures that exist

2. Define Monopoly and w hat are the characteristics of monopoly

3. Explain profitability in Monopoly

4. Explain the main differences between Competitive market and monopoly

Answer 1

1) There are many types of market structures, namely perfect competition, monopoly, oligopoly and monopolistic competition.

2) Monopoly is a market structure which is defined by a single firm producing all the quantity of the goods required and no other firm is present in that good's market. A monopoly is characterised by high entry costs, single producer and no close substitutes for the product supplied by the single producer.

3) In a monopoly, the profits are maximsed when the marginal revenue and the marginal costs are equal(MR=MC). It is important to note that this quantity of output is significantly different from the socially optimal output where P=ATC.

4) In a perfectly competitive market, there are many producers which sell homogenous products, which is different from a monopoly where there is a single producer. The price is elastic in perfect competition as the market sets the price but a monopolist has considerable control over the price as the demand is inelastic. One more key difference is that in perfect competition there are little or no barriers to entry as compared to a monopoly where significant entry barriers exist.