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Price

Rigid Demand D1

Total Revenue TR1

Flexible Demand D2

Total Revenue TR2

2

6

12

20

40

4

5

20

8

32

6

4

24

5

30

A monopolist attempts to raise his price from 2 to 4 to 6. As a result of this quantity demanded goes on falling. Yet in the case of Rigid Demand D1, with a fall in the demand from 6 to 5 to 4 Total Revenue TR1 increases from 12 to 20 to 24. With the Flexible Demand condition D2 the quantity demanded falls sharply from 20 to 8 to 5 causing Total Revenue TR2 to fall from 40 to 32 to 30. Hence the slope or the degree of flexibility of the demand curve governs the degree of monopoly power.

(C) Sources of Monopoly: Traditionally monopoly is considered as an evil form of market. It stands in the way of economic justice. Restrictive practices of the monopolist cause prices to be higher and supply of goods to be smaller than what would normally be available. Monopoly is decried and disliked by buyers or consumers, by government agencies and by other fellow producers. Yet monopoly always exists in some form or the other. It has simply to be tolerated. Monopoly is unavoidable under certain circumstances. These circumstances are called sources of monopoly. They are listed below:

i) There are some natural resources such as land, mines, oil deposits, fields, etc. the supply of each of which is absolutely limited. When such products are essential and not available anywhere else the owners of the resources automatically acquire natural monopoly powers.

ii) In some enterprises, large amount of capital is required to be invested right from the beginning. Steel production, railway construction etc. are examples of such enterprises. Those who possess such capital resources enjoy monopoly powers. Other small investors cannot compete with them and the monopoly survives unrivaled.

iii) In certain enterprises, specialized technical resources are required to be employed. Ship building, aeronautics, space research are examples of these enterprises. Those who possess such technical resources will have monopoly power.

iv) In modern times certain legal provisions create monopoly rights. These are in the form of copyright norms, patent norms, standardization, etc. leading to monopoly power.

v) Finally there are monopolies in the form of public utilities. Road construction, postal services, water supply, telecommunications, etc. are some of the examples. In the case of such services it is necessary to maintain a high quality and a uniformity of products or services. This results in monopoly power.

In all such cases monopoly form of the market becomes unavoidable. Though there are certain evils of the monopoly system these have to be suffered and tolerated. In absence of monopoly production and supply of these goods and services the society will be totally deprived of certain benefits.

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Index

11.1 Nature and Sources
11.2 Monopoly Demand Curve
11.3 Monopoly Equilibrium
11.4 Evils and Wastage of Monopoly

Chapter 12

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