Page 172 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 11: Monopoly

In Figure 11.4, we depict the case where the size of the market is so large that the monopolist, in Notes
order to maximise his output, must build a plant larger than the optimal and over utilise it. This
is because to the right of the minimum point of the LAC the SAC and the LAC are tangent at a
point of their positive slope and also because the SMC must be equal to the LAC. Thus, the plant

that maximises the monopolist’s profits leads to higher costs for two reasons: firstly, because it is
larger than the optimal size and secondly because, it is over utilised.
Figure 11.4

Finally, in Figure 11.5 we show the case in which the market size is just large enough to permit
the monopolist to build the optimal plant and use it at full capacity.
Figure 11.5

It should be clear as to which of the above situations will emerge in any particular case depends
on the size of the market (given the technology of the monopolist).

Task Try to find out the organisations closer to monopoly competition in the real

world.

Did u know? What is Herfi ndhal Index?

It is commonly used by government bodies while measuring the degree of competition in
a market. It takes into account the size distribution of fi rms.

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