Economics is an interesting and exciting field of study, but students sometimes get stuck with basic topics such as monopoly in economics. So be it any other type of monopoly, oligopoly, monopolistic competition, demand and supply of a product and so on, our subject matter experts are PhD holders and they know how to craft that stellar HI5003 – Economics for Business & Assessment Solutions. In case you would like to go ahead all by yourself, no worries, I would still like to help you. So, let’s discuss the basic topic of monopoly in economics. Let’s begin.
What is a monopoly in economics with example?
“Market form in which a single producer controls the whole supply of a single commodity which has no close substitutes.”
As an economics student, you all might know a monopoly is a term used for those firms who have a strong foothold as a sole seller of a particular product that it deals in as well as where there are no close substitutes available. It is also to be noted here that an unfettered monopoly boasts of market power and can also influence prices. For instance, Microsoft and Windows, DeBeers and diamonds etc.
Now, the question arises as to why monopolies arise in the market? It does so because of the following factors:
- When a key resource is owned by that particular organisation, for instance, DeBeers and diamonds.
- When that particular company is given the sole right by the government to produce the product. For instance, patents on new drugs, copyrights on software and books, etc.
- When the cost of production helps in making that producer more competent than others present in the market. For instance, Columbia Gas, American Electric Power, a toll bridge across a river.
To get clarity as to how the monopoly revenue is calculated, consider the below-mentioned table:
Average profits are equal to the expense for any S, AP = P×S/S, but peripheral profit is less than the price. Peripheral profits, ªTR/ªS, can even be negative.
When output upsurges, there are two effects on profits, P×S.
- First, there is the output consequence. When S goes up, the second part of P×S is greater.
- Second, there is a price consequence. When S goes up, the first part of P×S is lesser, since we have a descending slanted demand curve.
If the cost did not change as a consequence of the increased amount, we would only have a quantity consequence, and peripheral profit or marginal revenue would be the same as the cost. For a price taker, there is no price effect, so MR = P. For a monopoly, MR < P
What are the 4 types of monopolies?
Below are the 4 types of monopoly:
- Natural monopoly
- Geographic monopoly
- Government monopoly
- Technological monopoly
What is Oligopoly and what are its features?
Oligopoly is a market or an industry subjugated by a minor set of big vendors. Four features of oligopoly commerce are as follows:
- Few sellers: In an oligopoly, there is a less amount of sellers who control all or most of the sales in the market.
- Blockades and obstacles: There are many hurdles to complete in an oligopoly market as a small start-up venture.
- Interdependency: There is a lot of interdependency in the oligopoly market as if in case one firm changes or shuffles its price, it will have a major impact on the other firms in the market to revise their pricing as well.
- Prevalent advertising: oligopoly firms usually advertise their business on a national scale. Competitions such as Wimbledon finals, World Cup finals, NBA finals, etc. are advertised by prevalent advertising companies.
Below are some of the examples of oligopoly industries:
- Automobile businesses
- Steel businesses
- The aircraft manufacturing industry
- The oil industry (wholesale)
- Airline businesses
- Soft drink industries
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