In this question, I'm going to clarify the definition of monopoly and giving few examples to it. Monopoly is a market there is a single seller and large number of buyers and selling products or can say it is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service, so by the definition that have no close substitution and have a high entry and exit barrier. For examples in monopoly market are electricity, water service, cable television, local telephone services and many more. And so I'll find out the characteristics of monopoly, that is one seller and large number of buyers, no close substitution, restriction of entry of new firms and advertising. After that, I had show the diagram of monopoly.
1.1 Definition of Monopoly
Monopoly is a market there is a single seller and large number of buyers and selling products or can say it is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service, so by the definition that have no close substitution and have a high entry and exit barrier. For examples in monopoly market are electricity, water service, cable television, local telephone services and many more. If we are using water service that only can go to is Sewage Treatment Sdn Bhd, so Sewage Treatment Sdn Bhd is a monopoly because only the place to giving to subscribe the home water service. Another hands, monopoly is a market containing a single firm, in such instances where a single firm holds monopoly power, so the company will typically be forced to divest its assets. Antimonopoly regulation protects free markets from being dominated by a single entity. So for another example of monopoly that is the TNB (Tenaga National Berhad) Sdn Bhn, this is a only company to develop, operate and maintain TNB's portfolio of power generating units and provide the electric service to us. That is also the only place provide the electric to us so we are just only to subscribing this company for our home electric service.
1.2 Characteristics of Monopoly Market
First of the characteristic is that one seller and large number of buyers, this is the monopoly enterprise existence when there is only one seller of a product and it is only the firm that in the industry selling a product which has no close substitution. Monopoly market is the place where the monopoly enterprise operates so basically there are no different between a firm and an industry in monopoly as there only one seller. A monopolist is a price maker since there is one seller or producer and it has the market power to control over the price.
Second is no close substitution. No close substitution that is monopoly enterprise would like to sell a product which has no close substitute. It's the consumers and buyers could not find any substitute for the product. For example, water supply from local public utility which has no close substitution, but if the buyer can find any substitution of water service so that is no more in monopoly.
Thirdly is the restriction of entry of new firms. It is in a monopoly market, there are strict barriers to the entry of new firm. The barriers to entry are natural or legal restrictions that restrict the entry of new firms into the industry. A monopolist faces no competition because of barriers of entry. Example for the barriers to entry, that's limit pricing, firms may adopt predatory pricing policies by lowering prices to a level that would force any new entrants to operate at a loss.
Fourthly is advertising, it is advertising in monopoly market depends on the products sold. That is to developing consumer loyalty by establishing branded products can make successful entry into the market by new firms much more expensive and this is also particularly important in markets such as cosmetics, confectionery and the motor car industry. For the local public unities such as home phone service, water service and electricity don't need to make advertisement by the monopolist since the consumers know from where to obtain the product.
1.4 The diagram of Monopoly
monopoly diagram.jpg
•A Monopolist is a price maker because he does not face any competitors. Therefore demand is price inelastic.
•A monopolist will seek to maximize profits by setting output where MR = MC
•This will be at output Qm and Price Pm.
•If the market was competitive the price would be lower and output higher.
1.5 Conclusion of Question 1
Monopoly is a market that a single seller and large number of buyers and selling products or can say it is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service, so by the definition that have no close substitution and have a high entry and exit barrier. For examples in monopoly market are electricity, water service, cable television, local telephone services and many more. They have two types of monopoly about the monopoly firm work in the market, that is natural monopoly and government-created monopolies, the monopoly should have the knowledge of government license and franchise, patent, copyright and control overall raw materials.
Question 2
Answer
2.0 Introduction of Question 2
In this question 2, I'm going to differentiate the features of perfect competition, monopolistic competition, oligopoly, and monopoly. Understand the term of market place where the buyers and sellers meet and transactions of goods and service take place. After that I have to giving the examples characteristics in a table of differentiate features of Perfect Competition, Monopolistic Competition, Monopoly and Oligopoly.
2.1 Definition of Perfect Competition, Monopolistic Competition, Monopoly and Oligopoly.
2.1.1 Definition of Perfect Competition
Perfect Competition is a market in which there are many buyers and sellers, the products are homogeneous, and sellers can easily enter and exit from the market. All the firms sell an identical product, price takers and have a relatively small market share, buyers know the nature of the product being sold and the prices charged by each firm, the industry is characterized by freedom of entry and exit. For example, in a perfectly competitive market, a single firm should have decided to increase selling price of a good so that the better prices can let the consumers turn to the nearest competitor.
2.1.2 Definition of Monopolistic Competition
A market structure in which there are large numbers of small sellers selling differentiated products but these are close substitute products and have easy entry into and exit from the market. Many products in the world represent monopolistic competition such as books, apparel, shoes, chocolates, toothpaste and many more.
2.1.3 Definition of Monopoly
Monopoly is a market structure in which there is a single seller and large number of buyers and selling products or can say it is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service, so by the definition that have no close substitution and have a high entry and exit barrier. For examples in monopoly market are electricity, water service, cable television, local telephone services and many more.
2.1.4 Definition of Oligopoly
There are the only a few firms that make up an industry. This select group of firms has control over the price and oligopoly has high barriers to entry. And the products that are the oligopolistic firms produce are often nearly identical and, thus, the companies, in which are competing for market share, are interdependent as a result of market forces
2.2 Differences Monopoly, Oligopoly and Perfect Competition and Monopolistic Competition
Monopoly and oligopoly there are opposite with perfect competition and monopolistic competition. For the perfect competition and monopolistic is featured by many sellers and buyers and products that are similar in nature and as a result, many substitutes. Perfect competition and monopolistic competition there are only few barriers to entry for new companies, and prices are always determined by supply and demand. Therefore, producers in a perfectly competitive or in a monopolistic competition market are subject to the prices determined by market and don't have any leverage. For the example to the market of monopolistic competitive and perfectly competitive, to increase its selling price of a good should have decide by the single firm, and causing any firms that lose market share and profits when increase the prices of good, so that the consumers can just turn to the nearest competitor for a better price.
2.3 The differentiate features of Perfect Competition, Monopolistic Competition, Monopoly and Oligopoly.
Types Of Market
Number of Firm
Freedom of Entry
Nature of Product
Examples
Perfect Competition
Very Many or Large number of buyers and sellers
Unrestricted
Homogenous
(undifferentiated)
Cabbages, vegetables(these approximate to perfect competition)
Monopolistic Competition
Many/several
Unrestricted
Differentiated
Builders and restaurant
Oligopoly
Few
Restricted
Undifferentiated or Differentiated
Cement, Cars, electrical appliances
Monopoly
Only One
Restricted or completely blocked
Unique
Many prescription drugs, local water company.
2.4 Conclusion of Question 2
Perfect Competition is a market in which there are many buyers and sellers, the products are homogeneous, and sellers can easily enter and exit from the market. Monopolistic competition is a market structure in which there are large numbers of small sellers selling differentiated products. Monopoly is a market of single seller and large number of buyers and selling products or can say it is a situation in which a single company. And oligopoly is the only a few firms that make up an industry.
The below are showing the characteristic of perfect competition and monopolistic competition.
Characteristics
Large number of buyers and sellers, it is an important part of under the perfect competition or monopolistic competition is the existence of large number of buyers and sellers. This position of a single seller in a market is just small compared to the overall industry. For example, in the poultry industry there are thousands of vegetable producers in Malaysia. Each firm produces only small fraction of the total poultry industry, even if the firm increase its production by 100% or 200%, it doesn't affect much on the overall industry. Thus, no one single firm or seller can influence the goods price of the market. Therefore, in the perfect competition, firms are price takers because the individual sale volume is relatively small compared to market volume.
Homogenous or Standardize product, the second condition of perfect competition or monopolistic competition is that the products sold by the suppliers are fully homogeneous. The buyers do not differentiate the products of one seller to another seller. For example, the buyers cannot differentiate the vegetable sold in the Firm A and B. So, the firm cannot charge difference prices for the same product in the market.
Free of entry and exit, under the perfect competition and monopolistic competition buyers and sellers are absolutely free to enter and leave the market and the firms get only normal profit. And at this normal profit there is no tendency on the part of the existing firms to leave the market or the new firms to leave market. No restriction is imposed on their entry and exit of the firm from the industry. For example, in any firm who are wish to open a farm of vegetable can operate the business if the people have the necessary factors of production as the existing firm, that is land, labour and capital.
Role of non-price competition, in perfect competition and monopolistic competition market, price is the same and is uniform as the products in the market are identical. Price is fixed by all the buyers and sellers in the market. In other terms, non-price competition also can be referred as selling cost. Selling cost are the expenditures spent to increase the sale of s product or increase the demand for that product. For example, we do not see any advertisement on TV or printed media about vegetable or chicken especially without any brand.
Perfect knowledge of the market, all the sellers and buyers in perfect competition and monopolistic competition will have perfect knowledge of the market. Sellers must know the ruling market price charged by other sellers from the buyers.
Absence of transport cost, they shouldn't be any cost of transportation between sellers. Price being charged by the firms is free of transportation cost and the price is not affected by the cost of transportation of goods.
Diagram of price determination in a Perfectly Competition and firm
(A) Market (B) Firm
In diagram (A), the price is determined by the intersection of the market supply curve and the market demand curve. The individual firm, Vegetable A1 farm will sell at the equilibrium price RM5 per KG of vegetable as shown in (B).
Since the firms are price takers they are face a horizontal demand curve, all individual firms in perfect competition market face a perfectly elastic or horizontal demand curve.
