The word, “Monopolist” is derived from the Greek words, Mono meaning one and Polist for seller (FRIEDMAN, Milton, 2002). The existence of Monopoly in today’s world is very rare. Monopolies are usually protected by effective barriers to entry. Example of Monopolies may be a company with its unique patented drug or the only provider of electricity for a town. De Beers used to have Monopoly in the diamond market.
Monopoly does not have a complete control over price in a sense that it faces a negatively sloped demand curve. This means, any price increase will eventually loss some customers. Keeping in view, a Monopoly always wants to maximize its profit. For maximizing the profit, a Monopoly increases its output to the level where Marginal Cost (MC) intersects the Marginal Revenue (MR) as shown in the figure 1.
The diagram shows the profit maximization point for a monopolist. The profit maximization point lies where Marginal Revenue = Marginal Cost. The economic profit is the difference between the Demand and ATC curve. If it produces less than 5 units, the economic profit will be reduced. Also, if the output is increased to 6, the economic profit will again reduce.
A Monopolist will always strive for maximizing its profit. For a Monopolist, the Demand Curve is negatively slopped. If the demand for the product is less elastic, a Monopolist can fix a higher price. Ineleastic goods include those which are needs of human being such as electricity, sugar, wheat etc. However, if the demand is elastic, then a Monopolist should adjust the price to a certain level to gain maximum profit. Therefore, the price it charges is always greater than its MC.
In Monopolistic competition, there are many competing firms which are selling differentiated products (Investopedia.com). Due to this fact, each firm faces highly elastic negatively sloped demand curve. The term “Differentiated Product” refers to those products which
According to Nordhaus and Samuelson, “If a firm can appreciably affect the market price of its output, the firm is classified as an “imperfect competitor” (NORDHAUS, Willain D. and…
The group of companies prior to the merger was individual competitors in a market dealing with the same products. However, after being bought by two lawyers, the environment is bound to change as the competitive market changes in structure. The preceding scenario is an example of an imperfect competitive market referred to as monopolistic competition.
The research delves into monopolistic competitive market. The mere mention of monopolistic competitive shows that there are many small competitors in the same market. The competitors sell different products that can fill the same need. For example, the grocery store sells different brands of cheese.
As it is shown in the essay, monopoly is a market structure where there is a single producer or seller of the product in the market with no substitutes available. The paper focuses on uncovering of the relative inefficiencies of the monopoly market, compared with other structures. This market produces less output with higher prices.
What are the main differences between Monopolistic Competition and Oligopoly market structures? Which of these market structures best serves the interests of the consumer and why?
Monopolistic competition falls under the market structure of imperfect competition where the produces sell differentiated products where the products are not perfect substitutes.
Under free trade environment the market itself fixes the price whereas in the Monopoly structure the monopolist being the only supplier fixes the price at which goods or services will be provided. In the monopolist market structure there are no close substitutes to the product or service the monopolist deals with and there are different barriers to enter the market.
The author states that some industries can posses the characteristics of both oligopoly and monopolistic firm. With decrease in the level of competition the firms tend to behave more likely to that of oligopoly and less likely to that of monopolistic competition. The monopolistic market structure offers differentiated products.
In a monopolistic market, while one or a few players may be able to dominate the market, they can only do so for a short time until the other players are too powerful for them to continue with the dominance.