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Explain the monopolist Describe and/or analyze graphically the firm’s profit-maximizing,Break-even, and shut-down conditions Describe the short...

Explain the monopolist

Describe and/or analyze graphically the firm’s profit-maximizing,Break-even, and shut-down conditions

Describe the short and long run market conditions

Explain what a “natural monopoly” is

Describe limits on monopoly power

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Answer #1

Market Where only single seller exists in market is called monopoly market. Firm is price maker only. Entry barriers are higher in market.

Condition for profit maximization:

MR=MC

Break Even : P =AC

Shutdown point =AC

Following is diagram:

Over the long run, Monopoly firm continues to enjoy abnormal profit. New firms are attracted to market but these firms can not enter due to presence of entry barriers. But average cost of production falls due to presence of economies of scale.

Natural Monopoly: it exists when, average cost of production falls over the wide range of output.

Limitations on monopoly power:

Monopoly power depends on its ability to set price level. following limitations:

  • Cost of productions.
  • Demand conditions prevailing in market.
  • Fear of close substitutes.
  • Fear of government regulations.
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