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Unit-13: Theory of Monopoly Firm

Objectives Notes

After studying this unit, students will be able to:
• Study the Monopoly.
• Know the types of Discrimination.
• Understand the Jumping.
• Study the multi-plant Monopoly.

Introduction

In monopoly, there should only one producer of goods whether it may be single or group of partners,
or joint capital company or state. So in the state of monopoly, there only be a firm, but the numbers of
buyers must be enough that buyer will not be able to affect the price of goods but suppliers do so.

13.1 What is Monopoly?

The English word Monopoly has been taken from Greek word Monopolion. It means sole proprietorship
of selling. So pure monopoly is that state of market
in which only one firm is the sole producer of What is Pure Monopoly?
particular goods, and there is no close substitute of
those goods. As the monopolist is the only supplier It is that type of market where there is only one
supplier who has complete control on the price of
of goods in market, that is why neither there is any goods.
competitor nor any visible opponent.
For example, electricity in your home or factory can be drawn only through electricity board. You
can travel by only Indian Government Railway. These are all examples of monopoly. In the state of
monopoly no other firm can enter into industry. There is no difference between firm and industry. Firm
itself is an industry because it is the only producer of goods in market. Monopolist is the Price Maker,
he determines the price. It depends on the price determined by him that how much quantity of goods
he will sell. The demand curve of monopoly slopes from top to downward.
According to Koutsoyiannis, “Monopoly is a market situation in which there is a single seller, there are
no close substitutes for commodity it produces, there are barriers to entry.”
—Koutsoyiannis
In the words of Baumol, “A pure monopoly is defined as the firm that is also an industry. It is the only
supplier of some particular commodities for which there exists no close substitutes.”
—Baumol
13.2 Features of Monopoly

Main features of Monopoly are given below:
1. One seller and Larger Number of Buyers: In monopoly, there should be single producer of
commodity whether it is single, or group of partners, or joint capital company or state. Hence in
the situation of monopoly there is only one firm but the number of buyers should be enough. As a
result the price of goods would not be affected by buyer but by the seller.
2. Monopoly is also an Industry: In the situation of monopoly there is only one firm, hence the difference
between firm and industry finishes, that means there is no difference in the study of monopoly firm
or industry.

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