Monday, 27 January 2014

Pure Monopoly Market

Pure monopoly market exist when a single firm is the sole producer of product for which there are no close subtitutes.examples are public utilities and professional sports leagues.

1.a single seller:the firm industry are synonymous
2.Unique product: no close subtitutes for firm's product,example in indonesia is Pertamina and Elpiji,sale gassoline and gas distribution in market.
3.the firm is price maker:the firm has considerable control over the price because it can control the quantity supplied.
4.entry or exit is blocked

economuies scale is the major barrier.this occurs where the lowsest unit cost and,therefore,low unit prices for consumers depend on the existence of small number of large firms,or in the case monopoly,only one firm.because very large firm with a large market share is most efficient,new firms cannot afford to start up industries with economies of scale.public utilities are known as natural monopolies because they have economies of scale in extreme case.more than one firm would be inefficient because the maze of pipes or wires that would result if there were competition among water companies or cable barriers also exist in the form of patents and licenses,such as the professional sports leagues that control player contracts and leases on major city stadiums,it has to be noted that barriers is rarely complete.think about the telephone companies a couple decades ago:there was no substitute for a days,cellular phones are very creates a substitute for your house phone,causing the traditional telephone companies to lose their monopoly position.

Demand curve
monopoly demand is the industry or market demand and is therefore downward sloping,price will exceed marginal revenue because the monopolist must lower price to boost sales and cannot price discriminate in most cases.the added revenue will be the price of the last unit less the sum of the price cuts which must be taken on all prior units of output.the marginal revenue curve is below the demand curve.

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