Sources of Monopoly Power High capital requirements or large research and development costs. Production requires control over natural resources. Legal or regulatory barriers to entry. The presence of a network externality – that is, the use of a product by a person increases the value of that product for other people.
What is equilibrium in monopolistic competition?
Short-run equilibrium of the firm under monopolistic competition. The firm maximizes its profits and produces a quantity where the firm’s marginal revenue (MR) is equal to its marginal cost (MC). The firm is able to collect a price based on the average revenue (AR) curve.
What are the necessary and sufficient condition for monopoly equilibrium?
Equilibrium of the Monopolist under Alternative Cost Conditions ! In fact, the sufficient condition of profit-maximisation (i.e., the MC curve has to intersect the MR curve from below and not from above) can be satisfied in monopoly under alternative cost conditions (i.e., in all the three cases mentioned above).
What is the equilibrium price in a monopoly?
If the industry is a monopoly, then the equilibrium price and quantity is found by equating the marginal revenue curve for the monopolist with the marginal cost curve for the monopolist. The MR curve is MR = 1000 – 2Q while the MC curve is the supply curve. Thus, 1000 – 2Q = Q or Q = 333.3.
What will be the equilibrium price?
The equilibrium price is the price at which the quantity demanded equals the quantity supplied. It is determined by the intersection of the demand and supply curves. A surplus exists if the quantity of a good or service supplied exceeds the quantity demanded at the current price; it causes downward pressure on price.
Is it easy to exit a monopoly?
Perfect competition and pure monopoly represent the two extreme possibilities for a market’s structure. The structure of almost all markets, however, falls somewhere between these two extremes. Second, there is free entry and exit into the market; there are no barriers to entry or exit.
What are the conditions for equilibrium in monopoly?
Equilibrium in Monopoly The conditions for Equilibrium in Monopoly are the same as those under perfect competition. The marginal cost (MC) is equal to the marginal revenue (MR) and the MC curve cuts the MR curve from below. In this article, we will understand Equilibrium in Monopoly in detail.
Is the MC curve satisfied in a monopoly?
In fact, the sufficient condition of profit-maximisation (i.e., the MC curve has to intersect the MR curve from below and not from above) can be satisfied in monopoly under alternative cost conditions (i.e., in all the three cases mentioned above).
When is equilibrium is not possible in economics?
If by some chance, the indifference curve is not convex to the origin at the point where the price line is tangent to the indifference curve, as shown in the following diagram (Fig. 7.3), equilibrium at such a point is not possible. At point R, for instance, the price Conclusion.
When does a monopolist stop production what happens?
Once the price falls Below the average variable cost, monopolist will stop production. Thus, a monopolist in the short run equilibrium has to bear the minimum loss equal to fixed costs. Therefore, equilibrium price will be equal to average variable cost. This situation can also be explained with the help of Fig. 5.
