Monopoly and Monopsony

Topics: Supply and demand, Economics, Monopoly Pages: 36 (11498 words) Published: September 9, 2013
CHAPTER 10
MARKET POWER:
MONOPOLY AND MONOPSONY

R.KANAKARAJU 215112019
A.GOUTHAM SAI 215112020
B.R.PRADHEEP 215112027
M.PRABHAKAR 215112058
K.ADITHYA 215112063
NAGENDRA 215112069

MARKET POWERS: MONOPOLIST AND MANOPSONIST

Markets comprises of products or services, buyers and sellers. Where as in a perfectly competitive market there will be a reasonably good number of buyers and sellers of the products or services. So the possibility of influencing the market by a single seller or buyer is nil. Depending upon the supply and demand prices will be determined. Market price and demand is the deciding factor of the companies to estimate how much to produce and sell, in consumers view it is a deciding factor how much to buy. In contrary to the case which was discussed above, if the market is not a perfectly competitive market then the situations of monopoly and monopsony arise. Monopoly market is the one which has only one seller but so many buyers. Monopsony market is the one which has only one buyer and so many sellers. Monopolist is the sole producer of a product, in market demand curve, price is determined by the quantity which is offered by the monopolist to sell, the quantity of produce sold by monopolist is low and the price is high, it happens because his products has full demand and he wants to take full advantage in this situation. Normally if the price is high, only a few buyers which have the potential to buy those goods will turn towards the seller. Pure monopoly is a bit rare but in actual existing market, in many sectors only a few sellers available. This gives an advantage to them because their scarcity, if these sellers syndicate then it would lead to stronger monopoly and they gain the monopoly power and have a firm control over selling price this tends them to enjoy higher margins and better profitability. In monopsony, a single buyer is available for a lot of sellers. In this price determination is in the hands of buyer depending upon the quantity that he/she purchases. Monopsonist’s main goal is to buy as much quantity as possible by paying less amount of money, pure monopsony is unusual, but in many markets this occurs, they pay less than what they could be paying in a competitive market, this gains the buyer in this situation buyer attains the monopsony power. Market power has two forms namely monopoly and monopsony, it is the ability by a seller or buyer to affect the price of a good or service, even in a competitive market, market power exists to at least some extent because no one wants to lose the buyer. MONOPOLY:

As monopolist is the only one in the market who produces a product, he has the free will to change his selling policy whether to increase or decrease the selling price of a product or service. As the aim of an individual is to maximize profit, this can be achieved only when he raises the price. So, normally price will be higher in a monopoly market when compared to a competitive market. Monopolist determines the price of a product only by its demand and costs associated with those products. So possessing some knowledge over these two aspects is crucial in deciding the price of a product. CONCEPT OF MARGINAL AND AVERAGE REVENUE:

Average revenue is the price which it receives per unit sold, marginal revenue is the change in revenue that results from a unit change in output, in order to make more profits marginal revenue should be high. These aspects can be understood clearly with the help of a demand curve. The following table shows the behavior of total, average and marginal revenues for a demand curve, revenue is zero when price is 6` because at that price nothing is sold. However at a price of 5` one unit is sold, and then total (and marginal) revenue is 5`. An increase in quantity sold from 1 to 2 increases revenue from5` to 8`. So that the marginal revenue is 3`. As the quantity sold increases from 2 to 3, marginal revenue falls...
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