Bleak
OUM
TOPIC 8: MONOPOLY, MONOPOLISTIC AND OLIGOPOLY
TOPIC 8: MONOPOLY, MONOPOLISTIC AND OLIGOPOLY
Introduction
Apart from perfect market competition, we will look at three other types of market structure, namely monopoly, monopolistic and oligopoly in this topic. We will also compare between the characteristics of the market structure. In this topic, the emphasis will be on monopoly, while the other two structures
will be discussed briefly.
Learning Objectives
At the end of this topic, you should be able to: 1. outline the charcateristics of monopoly, monopolistic and oligopoly; 2. draw the demand curve for the monopoly, 3. explain how monopoly achieves market equilibrium in the short run;
4. analyse the different profit situations encountered by the monopolist;
and; 5. discuss the characteristics of monopolistic and oligopoly.
114
OUM
TOPIC 8: MONOPOLY, MONOPOLISTIC AND OLIGOPOLY
8.1 Monopoly
Monopoly is an industry that has only one firm that sells a good which has no close substitutes. Monopoly firms also represent industries because there are no other firms in the market. Therefore, the demand curve for the firm’s production is the same as the markets demand curve that slopes to the
bottom from the left to the right.
8.1.2 Characteristics of a Monopolist
(a) (b) There is only one firm in the market (single seller/producer) and there are many buyers. The firm is in control of the whole market whether it is from the angle of determining the price or the quantity of production. A monopolist has the power to determine the level of price because there is no competition from other firms. Therefore, if the monopolist intends to sell a bigger quantity, it has to reduce the price. This means that the monopolist can only control the price or the quantity of sales, and not both at once. Goods have no substitutes. Consumers have no choice other than what is produced by the monopolist. All competitors are prevented from entering the
TOPIC 8: MONOPOLY, MONOPOLISTIC AND OLIGOPOLY
TOPIC 8: MONOPOLY, MONOPOLISTIC AND OLIGOPOLY
Introduction
Apart from perfect market competition, we will look at three other types of market structure, namely monopoly, monopolistic and oligopoly in this topic. We will also compare between the characteristics of the market structure. In this topic, the emphasis will be on monopoly, while the other two structures
will be discussed briefly.
Learning Objectives
At the end of this topic, you should be able to: 1. outline the charcateristics of monopoly, monopolistic and oligopoly; 2. draw the demand curve for the monopoly, 3. explain how monopoly achieves market equilibrium in the short run;
4. analyse the different profit situations encountered by the monopolist;
and; 5. discuss the characteristics of monopolistic and oligopoly.
114
OUM
TOPIC 8: MONOPOLY, MONOPOLISTIC AND OLIGOPOLY
8.1 Monopoly
Monopoly is an industry that has only one firm that sells a good which has no close substitutes. Monopoly firms also represent industries because there are no other firms in the market. Therefore, the demand curve for the firm’s production is the same as the markets demand curve that slopes to the
bottom from the left to the right.
8.1.2 Characteristics of a Monopolist
(a) (b) There is only one firm in the market (single seller/producer) and there are many buyers. The firm is in control of the whole market whether it is from the angle of determining the price or the quantity of production. A monopolist has the power to determine the level of price because there is no competition from other firms. Therefore, if the monopolist intends to sell a bigger quantity, it has to reduce the price. This means that the monopolist can only control the price or the quantity of sales, and not both at once. Goods have no substitutes. Consumers have no choice other than what is produced by the monopolist. All competitors are prevented from entering the