Oct 5, 2011

MBA Notes - The Monopoly Market

There is a single seller in monopoly. This is exactly the opposite of perfect competition.

  • There is only one company that sells the product.
  • The company has no direct rivals or competitors.
  • Substitutes may exist. However, close substitutes are not available.
  • Difficult entry for other companies.
  • Monopoly is the price that producers and tried the best available, demand and cost conditions, without the fear of new businesses that take in the competition.
  • Monopoly is not a permanent condition. For reasons such as the development of substitutes, the entry of new firms, etc., a company that is now a monopoly not a monopoly may in the future.
Prices under monopoly
Aggregation as a mechanism to sell multiple optimal for a monopolist good. The price and monopoly power are determined based on certain assumptions, the price discrimination monopoly, companies are not defined. It aims to maximize returns. The individual buyer is a price taker and the company holds a monopoly in the state of no restrictions in terms of price.

    The company monopoly control of both the price and supply of the goods, but one at a time.
    The firm's demand curve is the same as the demand curve in the industry.

a) prices in the short term
The monopolist seeks to gain increasing performance to a level where the additional income to maximize cost extra. A monopoly can be profit or losses in the short term.

The company can benefit by making the price higher than the cost and demand, caused by the specified units of the commodity.
Puck Magazine April 29.1885 - Jay Gould and monopolists may-pole
But the company may suffer losses as well due to the request of his misjudgment in determining the price or determination. In addition, the risk of competitors, the prices set below cost leading to a loss in the end.

The monopoly in the short term may be to price or quantity. He can not fix both. The company has a strategy to maximize profits or minimize losses led to the development. The company must be alert to the possibility of its competitors.

b) Pricing In The Long Run
The short-term gains would certainly attract other companies to enter the market. With the entry of new firms in the market would change from a monopoly to oligopoly or perfect competition.

If the control of society for scarce resources, it may prohibit the entry of new companies and take advantage of their monopoly. In the long run, it is not necessary that companies use their existing equipment to optimize its performance due to the lack of competition.

However, it is necessary for the company to take a loss on the long term. The size of the facility and how they can be used depends on the demand for raw materials.

A monopolist is in a better position to exploit the market and may limit the penetration of external companies in the industry. It is the concentration of economic power in the market where a monopoly exists.


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