Creation of a Monopolistic Market - Essay Example

High School: Monopoly In definition, the monopolist is the sole supplier of a crucial good or service which in the current market structure has no close substitute. In this case, the sole supplier thereby owns the industry or the market niche in which his good or service is based. The creation of a monopolistic market today is hard due to the several benchmarks that are required for a monopoly to occur. Government interventions, the control of specific economic resources that directly influence the provision of a particular good or service, or the case of unfavorable economies of scale which discourage other competitors from accessing or thriving in the market are hard to come by but are however in place by some specific companies and producers in the world.

Focusing on the conditions of the market that a monopolist faces that influence the level of demand and marginal conditions in this particular market is the point of concern. The closest contrasting market that can be used to gauge the level of marginal revenue of the monopolistic market is the perfect competition market structure. In the perfect competition market, there exists a huge supply of both customers and suppliers in that; the demand and supply are equal and none of the factors influencing supplies overshadows the other.

Due to this balance in terms of demand and supply, a single vendor of particular goods or services cannot dictate at which prices his/her commodities will sell. The forces of the market are the ones that dictate the price in the market. The monopoly market however has control over the prices of his/her goods and services. This however is put under the check and balances that influence demand and supply which is not the case in the perfect competition market. For the monopolist to achieve a hike in prices while maintaining the levels of units sold, he/she has to tone down on the price per unit.

The difference between the initial revenue and the revenue to be realized after reducing the cost of the final unit batch is what is referred to as the marginal revenue. Due to the downward sloping curve in demand that is experienced by the monopolist, the prevalence of special conditions to fix the deficit in profit accumulations is made by the monopolist. The monopoly thereby has to consider the difference that is created in profits he considers the marginal revenue approach of raising the number of units sold so as to increase the level of profits.

He, therefore, has to measure the point at which the total revenues and the tally of the total cost so as to control the depression in the equilibrium of price created by the drop in price per unit of every last batch. The profits are also maximized when the monopolist equalizes the level of the marginal revenue to that of the marginal cost. This applies to both market structures of monopoly and perfect competition. A rather orthodox method of fixing the level of profits in the monopoly market is the price fixation in variation to the different buyers seeking the goods and services of the monopolist.

This is referred to as price discrimination as this in the final calculations raises the marginal cost to a point that is close equal to or more than the level of increasing the price per unit of every batch thus eradicating the error given by marginal revenue in the calculation of total profits. This is pre-determined by the price differentiation principle.