Test: Non Competitive Markets - 2

‘Mono’ means one and ‘poly’ means seller. Thus, monopoly refers to a market situation in which there is only one seller of a particular product. Here the firm itself is the industry and the firm’s product has no close substitute. The monopolist is not bothered about the reaction of rival firms since it has none. The demand curve of the monopolist is the industry demand curve. (Recall that in pure competition there are two demand curves).

In a monopoly market, the marginal revenue curve and the demand curve are distinct and downward-sloping. Production occurs where marginal cost and marginal revenue intersect.

Average revenue is the revenue per unit of the commodity sold. It is obtained by dividing the total revenue by the number of units sold. Mathematically AR = TR/Q; where AR = Average revenue, TR = Total revenue and Q = Quantity sold. 
If there is any change in the AR, then TR will also change. Therefore, the shape of the total revenue curve depends on the shape of the average revenue curve.

Average revenue for any quantity level can be measured by the slope of the line from the origin to the relevant point on the total revenue curve.
MR = ∆TR/∆Q
∆TR/∆Q indicates the slope of the total revenue curve.
Thus, if the total revenue curve is given to us, we can find out marginal revenue at various levels of output by measuring the slopes at the corresponding points on the total revenue curve.

This type of market is combination of monopoly and competitive markets. a monopolistic competitive market is one with freedom of entry and exit, but firms can differentiate their products. 
Toothpaste compete on quality of product as much as price. Product differentiation is a key element of the business. There are relatively low barriers to entry in setting up a new business.

Oligopoly is when a small number of firms collude, either explicitly or tacitly, to restrict output and/or fix prices, in order to achieve above normal market returns. Firms in an oligopoly set prices, whether collectively – in a cartel – or under the leadership of one firm, rather than taking prices from the market.

The monopolist has control over pricing, demand, and supply decisions, thus, sets prices in a way, so that maximum profit can be earned. The monopolist often charges different prices from different consumers for the same product. This practice of charging different prices for identical product is called price discrimination. And in monopoly it is decided by the change in the demand of the product.

In a monopoly market, there is only one product or service of such kind, therefore the demand of the product is not affected by any external force which means the AR will remain same as the Demand.