Chapter-Forms of Market and Its Equilibrium Micro Economics class 11 in english Medium CBSE Notes

Monopoly:

• monopoly is made from two words:"mono" and "poly" where mono means single and poly means seller.
• monopoly is that market in which there is a single seller in the market producing such goods which have no close substitue.,
• In monopoly, firm and industry are same.
• Here, the firm or industry is the price maker.
• Example - railways.
• In order to increase sales monopolist must reduce the price of his product so as to induce:

1. existing buyer to buy more.

2. new buyer to enter the market.

features of Monopoly:

(a) single seller and large number of buyers - since there is a single seller in the market, therefore prices are controlled by the seller.no buyer can influence the price.

(b) No close substitutes - 

pure monopoly: under this situation, there is no subatitute of the product.

simple monopoly: under this situation, the product has close substitutes but no perfect substitute.

(c) Restriction on entry of new firms -Due to certain legal,natural barriers no new firm is allowed to enter the industry.

(d) price discrimination - The act of charging different price from different buyers of the same good is called price discrimination.

• A monopoly performing price discrimination is called discriminating monopoly.
• Types of price discrimination:

(i) Discrimination of first degree: - When monopolist changes separate price for each unit.

(ii) Discrimination of second degree - When monopolist charges separate price of each batch or lot.

(iii) Discrimination of third degree - When monopolist charges different prices from different category of buyers.

• Reasons for price discrimination:

(i) consumer ignorance - Consumer lacks knowlege of cost of product therefore,seller can change different prices from different consumers.

(ii) Different markets - Monopolist charges different prices indifferent markets, prices in these markets may differ due to distance between one market and another.

(iii) charging different price for different customers - Monopoly may charge different prices from different consumer based on their elasticity of demand.

e.g.: A higher price from those having leaa elasticity and vice versa.

(e) Shape of AR curve - in monopoly, if a seller wants to increase the sale of his product  then he must reduce the price. Due to this the AR and MR curve are downward sloping.

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