In: Economics
Graphically illustrate a monopoly (or the imposition of monopoly power on a market from government intervention) via two cases: 1) quantity (output) restrictions 2) price too high
Monopoly market is the market of one seller. Monopoly is highest
degree of imperfect competition. No close substitutes are available
in the market. Demand curve faced by monopolist is in elastic. In
monopoly firm and industry are same. Entry is blocked in monopoly
market. Monopoly attain maximum profit only because entry of new
firms are blocked. Average revenue curve (demand curve ) and
marginal revenue curve of monopoly is negatively sloped curve. It
shows in order sell extra unit of commodity ,monopoly has to reduce
its price Unlike perfect competition AR is not MR in monopoly
market. A monopolist will never produce an output with elasticity
less than one. The maximum output sold by a monopoly where
elasticity is equal to one. The minimum price fixed by monopoly at
a price where elasticity is equal to one. Monopoly earn super
normal profit , normal profit or losses during short run. But it
earns super normal profit in long run Monopoly fixes its price
greater than marginal cost to reap more profit. Monopoly firm's
price ans output are determined when Marginal revenue is equal to
Marginal cost. The best level of output is OQ where MC curve
intersects MR curve from below. Monopoly determines his output and
price only when AC is diminishing. The best level of output is
always less than the output stated by Price is equal to marginal
cost The best level of output under monopoly is the output less
than the output at minimum AC. Here the firm earns abnormal
profit