Theory of monopoly, Microeconomics

Monopoly is that form of market where there is only one firm producing a particular product. Being the sole supplier, the monopoly firm has the power to control prices and output to maximize its profit. Monopoly can be defined as the absence of competition among firms.
Conditions for a monopoly to exist are:

1. Single producer of the product

2. There must be no close substitutes for the product so that there is no competition over market share.

3. Strong barriers to the entry of new firms into the industry.

Maximizing Profit

The principle objective of a monopolist is to maximize profit.

Profit = Total Revenue - Total cost.

So, the problem faced by the monopolist is: max TR - TC.

On carrying out this optimization exercise, we arrive at the following condition:

MR = MC.

That is, the optimal choice of output will be at the point where the marginal revenue is equal to the marginal cost of the firm. If the MR was greater than the MC then the firm could increase its profit by producing a few more units. If the MR was less than the MC then the firm should bring down the level of production and cut down the excess cost.

Posted Date: 3/13/2013 1:10:09 AM | Location : United States







Related Discussions:- Theory of monopoly, Assignment Help, Ask Question on Theory of monopoly, Get Answer, Expert's Help, Theory of monopoly Discussions

Write discussion on Theory of monopoly
Your posts are moderated
Related Questions
The Productivity Growth Slowdown However in 1973 steady trend of climbing rates of productivity growth stopped cold. Between 1973 and 1995 measured growth in output per worker

THEORY OF REVEALED PREFERENCE: If consumer's taste and preferences do  not change, then observation of her market behaviour or, actual act of choice between the commodity sets

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

What is the resultant pressure if 2.7 mol of ideal gas at 273 K and 2.51 atm in a closed container of constant volume is heated to 399 K

subsitution effect dominate tha income effect in which good case?

The Demand Curve - The demand curve exhibits how much of a good consumers are ready to buy as the price per unit changes keeping non-price factors constant. - This price-qua

Discuss the costs and benefits of establishing a common currency. So, there is a convergence issue in setting up the common currency - and there will also be a convergence prob


List and describe the determinants of the price elasticity of demand and of supply.

2 i) Explain what are the key assumptions by the welfarist approach. ii) Define and discuss the properties of a Generalized Utilitarian social welfare function and represent it