Page 176 - DECO405_MANAGERIAL_ECONOMICS

Unit 10: Imperfect Competition – Monopoly

10.4 Summary Notes

In the case of monopoly one firm constitutes the whole industry.
There must be a single producer or seller of a product and the product has no close
substitute.
In the short run the monopolist maximises his short run profits or minimises his short run
losses if the following two conditions are satisfied: (i) MC = MR and (ii) The slope of MC
is greater than the slope of MR at the point of their intersection.
In the long run, the monopolist has the time to expand his plant or to intensively use his
existing plant which will maximise his profits.

A seller indulges in price discrimination when he sells the same product at different prices
to different buyers. A monopolist firm sells a single product in two different markets
either different elasticities of demand.

10.5 Keywords

Dumping: When the firm is a monopolistic in the domestic market but faces perfect competition
in the world market.
Equilibrium: Condition when the firm has no tendency either to increase or to contract its
output.
Imperfect competition: A market structure wherein individual firms exercise control over the
price to a smaller or larger degree depending upon the degree of imperfection present in a case.
Market period: A very short period in which the supply is fixed, that is no adjustment can take
place in supply conditions.

Monopoly: Existence of a single producer or seller which is producing or selling a product
which has no close substitutes.
Perfect competition: A market structure characterized by a complete absence of rivalry among
the individual firms.
Profit: Difference between total revenue and total cost.

10.6 Self Assessment

1. State true or false for the following statements:
(a) In the case of monopoly one firm constitutes the whole industry.

(b) In case of monopoly, the marginal revenue is less than the price.
(c) In the short-run, a monopolist cannot be in equilibrium if MC cuts the MR curve
from below, even if MC=MR.
(d) Monopoly represents an efficient use of resources at the macro level.

2. Choose the appropriate answer:
(a) Given the same cost and revenue schedules, a profit-maximizing monopolist will
produce:

(i) less output than a competitive industry
(ii) more output than a competitive industry

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