Graphically illustrate a monopoly (or the imposition of monopoly power on a market from government intervention)...

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

Expert Solution

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

Rahul Sunny answered 1 year ago

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