Equilibrium Sales and Price : Since extra sales do not add to cost, the monopolist will keep expanding sales as long as they add to revenue, provided the stocks permit. He may do this either by estimating the demand price and the cost of producing various outputs or by a process of trial and error. The firm is the industry. But when there are cost differences between the firms as is generally the case, the cartel price will be fixed by bargaining between the firms. Please do send us the Monopsony Pricing, Bilateral Monopoly problems on which you need help and we will forward then to our tutors for review. Example- night rate electricity is cheaper, peak versus off-peak phone charges.
The monopolist may hold some patents or copyright that limits the entry of other players in the market. But he cannot change his fixed plant and equipment. It is his sales curve or average revenue curve. Any other level of output will decrease rather than increase his profits. A good may be sold in one town for Re. In the long run, the monopolist can change the size of plant in response to a change in demand. The monopolist may have a technology patent.
An inferior good that is price elastic. Legal restriction: A firm which develops or invents a new product or process can use the law of patents, franchise, copyright etc. As a result cost is not affected by sales, and the marginal cost of sales is zero. The monopolist should also study the conditions of supply. He has to sell the product at a price determined by the demand for it and which brings him maximum total revenue. Thus, with insufficient stocks the outcome of the monopolised market is the same as under perfect competition. There may be super normal profit in the short run but they will be swept away in the long run, as new firms entered into the industry.
This may start a price war between the cartel firms and the new entrants. Though the firms agree not to sell at a price below the fixed price they are free to vary the style of their product and the advertising expenditure and to promote sales in other ways. One is the past level of sales of the various firms and the second is the productive capacity of the firms. Figure 18 B shows a short-run situation in which the monopolist earns only normal profits. Market-Sharing by Output Quota: The second type of market-sharing cartel is the agreement reached between the oligopolistic firms regarding quota of output to be produced and sold by each of them at the agreed price. Managerial Economics; Management; Price-Output Determination under Monopoly in the Short-Run Introduction- - Monopoly- -. If he finds it possible to get more profits by restricting his output, he will not hesitate to do so.
The monopolist may produce in the market period, the short period or the long period. Sales are confined to the stocks available and in sight. From within this zone, the monopolist chooses the equilibrium combination. The monopolist controls the whole market and no new firm can enter into the market so the distinction between a long run and short run is not necessary. Therefore, in the long run, equilibrium is established when firms are earning only normal profits.
Then the monopolist will try to fix a low price and sell more units. The individual firm as buyer and seller is simply a price taker. Monopolist can increase his output in response to increase in demand by changing his variable factors. However it may not be possible to merge the monopoly firm which the monopsony firm. Traditionally, public utilities such as electricity, water, railways etc.
Let us first consider the equilibrium position of the monopolist. This is changing fast as the industry seen fresh competition. Kalimati, Kathmandu: Dreamland Publication, 2011. Elasticity of demand: If demand is inelastic, the monopolist will fix high price of his product. In practice, he cannot do that.
Fig: Long run equilibrium of firm and industry The given figure shows the equillibrium of firm and industry respectively under perfect competition market. For example when clients of a certain good are structured, or when a communalist regime legalize importation or when a definite person comes about to have a liking for some products which no one else necessitate or when a single big factory in an inaccessible vicinity is the solitary consumer of some marks of effort there is monopsony. All firms cannot enter the field because they cannot afford to invest a large amount of capital. Conditions of Price-Discrimination: There are three main types of situation: a When consumers have certain preferences or prejudices. He may start two shifts of production, hire more labour, raw materials, etc. This happens particularly when the good in question is a direct service.
Accordingly, the demand curve of the organization constitutes the demand curve of the entire industry. It will always pay a monopolist to reallocate a given total output between the sub-markets, till marginal revenue becomes equal in each market. It is worth noting that all types of cartels are unstable when there exists cost differences between firms. We know that marginal revenue is positive where the lε dl is more than one elastic. The Market Period : The implications of monopolisation are best understood in contrast to the results in a perfectly competitive market. But under price leadership one firm sets the price and others follow it.