The role of monopolies in an economy
Monopoly is an industry with a single seller and many buyers. In this market, there is so competition for
the seller as he is the only seller with close substitutes.
There are two types of monopoly. One is a natural monopoly which is owned by the government, second
is a private monopoly which is privately owned. The products here are not homogeneous unlike perfect
competition. Moreover, there are barriers to entry to the industry. This means it has a restriction to block
the new firms from entering the industry. A monopoly is a maximizer of profit because it maximizes
income as well as a price maker because it plans how much price to set for the goods or what type of
goods to be sold. Price in this market is set above marginal cost.
A successful monopoly will have a demand curve which is relatively inelastic. In the short run the
monopoly earns normal, supernormal and subnormal profits and in the long run they earn supernormal
profit.
A monopolist firm cannot change all its production factors in the short run, because their expenditure
curves are identical to the company generating in perfect competition. A monopolist may suffer losses
too in the short run but would close down only if the losses outweigh its fixed costs. Moreover, if the
market for his commodity is strong, the monopolist in the industry will earn supernormal profits too. A
monopoly will shut down if the revenue does not cover variable costs at all rates of production. The
monopoly will continue to make a loss if MC is equal to MR where the price exceeds AVC but is less
than ATC. Below is a diagram for supernormal profit in the long run.
An example of the supernormal profit based on a study is Apple. It is the world’s most profitable
company. Few examples of monopoly according to research are energy companies like Con Edison,
Computer Programming Companies like Microsoft. Monopoly therefore is the solely firm which
Monopoly is an industry with a single seller and many buyers. In this market, there is so competition for
the seller as he is the only seller with close substitutes.
There are two types of monopoly. One is a natural monopoly which is owned by the government, second
is a private monopoly which is privately owned. The products here are not homogeneous unlike perfect
competition. Moreover, there are barriers to entry to the industry. This means it has a restriction to block
the new firms from entering the industry. A monopoly is a maximizer of profit because it maximizes
income as well as a price maker because it plans how much price to set for the goods or what type of
goods to be sold. Price in this market is set above marginal cost.
A successful monopoly will have a demand curve which is relatively inelastic. In the short run the
monopoly earns normal, supernormal and subnormal profits and in the long run they earn supernormal
profit.
A monopolist firm cannot change all its production factors in the short run, because their expenditure
curves are identical to the company generating in perfect competition. A monopolist may suffer losses
too in the short run but would close down only if the losses outweigh its fixed costs. Moreover, if the
market for his commodity is strong, the monopolist in the industry will earn supernormal profits too. A
monopoly will shut down if the revenue does not cover variable costs at all rates of production. The
monopoly will continue to make a loss if MC is equal to MR where the price exceeds AVC but is less
than ATC. Below is a diagram for supernormal profit in the long run.
An example of the supernormal profit based on a study is Apple. It is the world’s most profitable
company. Few examples of monopoly according to research are energy companies like Con Edison,
Computer Programming Companies like Microsoft. Monopoly therefore is the solely firm which
