Since the central board manipulates prices, outputs, sales and distribution of profits, it acts like a single monopoly whose main aim is to maximise the joint profits of the oligopolistic industry. For instance, the larger the insertions and the size of advertisement, the lower the advertising rates per page. The present chapter deals with various aspects of monopoly market. This is your solution of Lecture 10 - Price and Output Determination Under Monopoly search giving you solved answers for the same. Various aspects of perfect competition have been discussed in the previous lesson. Implying, the monopoly supply curve is indeterminate. Every time it spends this sum of money, the demand curve for its product shifts upward to the right so that it is able to sell more than before and earns larger profits.
He is in the position of a monopolist. Thus, a monopolist may sell its product to N-numbers of consumers in the market. Here, the cell phone producing firm cannot said to be enjoying absolute or perfect monopoly power rather, imperfect monopoly power in the market. Inefficiency and Loss of Social Welfare under Monopoly 9. To Study Price and Output Determination under Monopoly for Class 11 this is your one stop solution. Its aim is to push the sales of one firm at the cost of others. The aim of a monopolist is to maximize his profits.
Hence the choice of the monopolist will be confined to the range of output where the demand is elastic. This portion of its demand curve is relatively inelastic. If the number of firms is fairly large and the product of each firm is not very similar, the demand curve of a firm will be quite elastic. However, the firms typically have to spend a great deal in promotional activities to convince customers that the product is prestigious. With the entry of new firms in the group, super-normal profits will be competed away. The firm will, however, continue to spend Rs 1,000 on advertising its product each time so long as it adds more to total revenue than to total costs, till profits are maximised. It is not essential that a firm selected as the barometric leader must belong to the industry.
A firm may enjoy monopoly power in a market owing to ownership of raw materials, exclusive knowledge, exclusive techniques of production, legal sanction, imposition of barriers, limited size of the market, etc. But there is no scope for getting abnormal profit under competition for there are several number of sellers. This is illustrated in Fig. Dumping — a special case of price discrimination? He always compares marginal revenue with cost at its out put rate. Regulation of monopoly and anti-trust law? In these two situations, the demand curve of the oligopolistic firm has a kink at the prevailing market price which explains price rigidity. And the corresponding equilibrium price is p 0. In order to achieve this objective, it goes on producing a commodity so long as the marginal revenue is greater than marginal cost.
A normal good that is price inelastic. We know that marginal revenue is positive where the lε dl is more than one elastic. The new demand curve may be more or less elastic throughout its length or parts of it may be more or less elastic than the old demand curve before incurring selling costs. Forms of Monopoly Based on the various causes of occurrence, different terminology may be prefixed before the word monopoly to signify a different connotation of it. The incoming firms install latest machinery and try to differentiate their products from those of the established firms. This type of cartel is inherently unstable because if one low-cost firm cheats the other firms by charging a lower price than the common price, it will attract the customers of other member firms and earn larger profits. In fact, a producer will resort to proportional selling costs only for a short while till his old stock is exhausted and in the process he also attracts new customers and induces regular users to buy more of it.
But marginal revenue is not equal to price. We have assumed here that the producer continues to incur proportional selling costs which are unrealistic. But in practice, they seldom agree on profit distribution. So when such problems arise in joint profit distribution in contravention of the cartel agreement, they lead to the breakdown of the cartel. The barrier may be technological, legal or natural. So he cannot sell much and he may not get large profits. In this, firms producing a homogeneous product form a centralised cartel board in the industry.
Various aspects of perfect competition have been discussed in the previous lesson. The Model : Given these assumptions, when each firm sells its product at the price set by the dominant firm, its demand curve is perfectly elastic at that price. Based on the degree of imperfection due to market power , markets are classified as monopoly, monopolistic competition, oligopoly, and duopoly. The market demand curve for the product is given and known to the cartel. He will keep a part of his plan and machinery idle.
Such excess capacity may develop under pure competition due to miscalculations on the part of producers or to sudden changes in demand or cost conditions. Examples of State monopolies are railways, harbors, canals and the central bank. It may be noted that though a monopoly firm decides the price of its products, its pricing decision is not independent of the elasticity of demand of the product in the market. If the full variable cost is not met, the firm will close down in the short-run. Accordingly, the demand curve of the organization constitutes the demand curve of the entire industry. The level of competition in a pure monopoly market is absolutely zero.