Monopolistic competition

Monopolistic competition

Monopoly and full or pure competition are two different market condition which is not seen in the current market. We see a big picture which is situated in the middle of the both market. We see a market where a lot of buyer and seller available and also they have a different product. They have the competition but not the pure or full competition, also there product are not perfect or full substitutes but they are close substitutes. There are lot of buyers & sellers so they are not in the condition in which they are able to influence the decision making & price level.

Monopolistic competition

Monopolistic competition

 Features –

ü  There are lot of buyer and sellers

ü  There product are little different from each other or they have differentiated product

ü  Every firm have the freedom to enter or exit

ü  They always advertisement for marketing

ü  We see lot of patent right and trade marks in this types of market

ü  There are lot of buyers & sellers in the market so by price decline they are not able to influence the market but if they increase the price surely they lose their customer so their demands curve in a slope.

Bilateral monopoly

Bilateral monopoly

It is a market condition where only one buyer and one seller available for the goods and services (trade). In other word, we can say that it is a market condition where there is no alternative or competition available and both the side know each other and aware about financial condition. Only one buyer and one seller available in the market and also there is no alternative available for goods and services.

Assumptions –

ü  There is only one thing in the market

ü  No alternative available in the market

ü  Only one seller in the market

ü  Only one buyer in the market

ü  Both the party try to maximum there benefit

Fix the price or price determination

Bilateral monopoly

In the picture, D is the demand curve for monopoly and MR is the marginal revenue. MC is marginal cost and it is also equal to monopsony supply curve. If a monopsony wants to buy more thing, he must pay higher price for this. Monopoly try to fix a price like P1 but monopsony want to pay only P2 so they must be settle in middle of both the price like P3.

What you know about Monopsony

What you know about Monopsony

It is a market which is totally reverses the monopoly market. In this market, there is only one buyer available for any goods and services. Not a single buyer interested in a particular goods and services. For example, may be the consumer in the organized manners or any government which ban other one or some-one who make a habit for a particular thing.

In other words, we can say that it is a market where only one buyer available to buy any-thing without any competition & also there is a ban for new buyer to inter into the market. Price will be fixing just similar to the monopoly market. In monopsony, adjust the buyer behaviour in a manner where its marginal utility is equal to marginal cost so that he maximum his marginal utility.

Monopsony market

A monopsony set there equilibrium on “X” where MU=MC, he want to buy “OY” quantity at “BY” price. In this way, a monopsony set a marginal utility “ABXC”.

Assumption and different types of monopoly

Assumption and different types of monopoly

In monopoly market, there is only one seller for any particular things and there is no alternative product or thing available in the market. In this market, on firm is equal to the whole industry so the demand curve is same & stable demand. In this market, supplier knows the customer interest and income level. In this market, the cross elasticity of product is zero.

Assumption and different types of monopoly

Assumption –

ü  There is only one seller in the market

ü  No alternative product available in the market

ü  Seller want to earn more profit by low level of cost

ü  Full competition in the factor market or raw supply market

ü  One price for all customer

ü  Price is already given for consumer

Different types of monopoly

ü If government provide special right to someone for innovation or research

ü  If a firm get low level of cost and set low price

ü  Full control over particular raw material supply

ü  If government set some regulation

ü  Government services like post office

ü  Government provide license for special production and also save them from out side competition.

Meaning of Monopoly

Monopoly

In monopoly market, there is only one seller for any particular things and there is no alternative product or thing available in the market. In this market, one firm is equal to the whole industry so the demand curve is same & have a stable demand. In this market, supplier knows the customer interest and income level. In this market, the cross elasticity of product is zero.

Monopoly

Average revenue (AR) is the demand curve in monopoly market because it is a rectangular hyperbola. In this market, a supplier control one thing either production or price.

If supplier select price “P” so selling quantity “Q” will be decided by customer. If a seller selects the “Q” level of production then “OP” price decide by the consumer.

Interdependent Price

What you know about Interdependent Price

In full competition, we assume that the price of one thing is totally different from the other one. But this view is totally a predication or assumption which is totally false. There are two types of things – alternative and complementary things. In both the category, things have many alternative things and some-one have complementary things.

In alternative things if price increase of one thing then people start to buy other one. In complementary things - two things are associated with each other. If there is an increase or decrease in the price of one thing, it also affects the demand & supply of other things or related things.

Interdependent Price

 

Interdependent Price

ü  Joint demand or complementary – when we demand two or more thing jointly, we call it a joint demand or complementary demand – like car or petrol and pen or ink and woolen or meat etc. when we increase the price of one thing automatically it decrease the demand of other one. For example if car price increase then less person able to buy it and demand of petrol decrease. But we assume that there is no change in the petrol supply. If car price increase from P – P1 then its demand decrease from Q – Q1. The petrol demand also decrease and price also come down.

ü  Derived demand – there are lot of production factors and their demand also associated with the final product demand like we require labor, raw material and other thing to make a building so demand of labor, raw material & other thing is a derived demand. 

What you know about Joint Supply

What you know about Joint Supply

In full competition, we assume that the price of one thing is totally different from the other one. But this view is totally a predication or assumption which is totally false. There are two types of things – alternative and complementary things. In both the category, things have many alternative things and some-one have complementary things. In alternative things if price increase of one thing then people start to buy other one. In complementary things - two things are associated with each other.

There are lots of things which supply jointly because their production sources are same or they are produce jointly. In other words, one thing already associated with the other one production – like wheat and grass for animals or woolen and meat etc. we divide these thing into two parts – fix ratio or proportion and variables ratio or proportions.

ü  Production at fix ratio – this type of ratio is decided by our nature. For example if wheat demands increase – its price increase – grass production increase – grass price decrease.

 Joint Supply

 Joint Supply

ü  Production at variable ratio – in this part, we make a change in ratio and adjust it according to our need. For example if we require more meat then we use other types of bhade and if we require more woolen then we use different types of bhade.

Different between a Market price and Normal price

Different between a Market price and Normal price

ü  Market price is a price which we see in a short run or few days or for special time. Normal price is a price which we see in a long-run.

ü  Market price always driven by the demand and supply will be stable. Normal price is always driven by supply because in long run supply will be change according to time.

Market price and Normal price in market

ü  Market price always is affected by abnormal activity which takes place in market. Normal price will be affected by normal activity.

ü  Market price will be above or below the average cost so a firm earns abnormal profit or loss. Normal price will be always equal to the lost point of long term average cost(LAC)

ü  Every-thing which is re-produce, recycles or don’t have, has a market price. On the other hand – only reproduce or recycle have a normal price.

ü  Market price is a real price which we have in the market at a point of time. Normal price is an artificial price.

Pricing in a Perfect Competition Market

Pricing in a Perfect Competition Market

Pricing is an important decision in any types of market. We know that their lot of buyer and sellers in the market. Both the parties buy or sell a particular thing on a fix price. On the other hand, they show their demand for any-thing on a particular price or seller also show interest to sell on a different price.

Demand always represents the buyer behaviour. In this if there is a price rise, buyer buy less quantity and if there is low price of any particular thing, buyer buy more goods and services. On supply side, it has a direct co-relation with price. On high price, we have more supply and on low price, we have less supply.

Pricing in a Perfect Competition Market  

Demand and supply, both are anti-forces which is driven by buyers and sellers. Both anti-forces always run in different direction so when both the forces cross the each other that is the Equilibrium Price. On this price, every buyers and sellers interest to buy & sell all the goods and services.

Pricing in a Perfect Competition Market  

In this table, we mention different – 2 prices, demand and supply. We see different – 2 combination of demand and supply with price. On low price, we have high demand but low supply. On other hand, on high price – we have low demand but high supply. But in the middle on Rs 4, we have equal demand & supply so our Equilibrium price is Rs 4.

What you know about Perfect Competition

What you know about Perfect Competition

Every market has its own market or it’s depending on the product market that what types of strategy adopted by the manufacture. “Perfect Competition” market is a important market condition to study. A market where there are lots of buyers & seller in the market also they are fully aware about the market also they deal in homogeneous types of product with-out any restrictions.

In this market – on hand, there are lots of sellers and there are able to supply a small percentage of total market supply so he is not able to bring change in the market or price. But on the other hand – there are lot of buyers and a single buyer not able to influence the market when there is a homogeneous product available in the market.

What you know about Perfect Competition

Some condition or assumption for market

ü  Large number of buyers and sellers

ü  Homogeneous product

ü  Firm free to enter or exit

ü  Profit maximization

ü  Lack of Artificial Restrictions

ü  Full mobility in the market

ü  Full knowledge of market

ü  Lack of transport costs

                                                                                                                            

Law of supply

Law of supply

There are two types of power or forces which manipulate the rate – demand and supply. Demand is one side which is related with house-hold and they do not have a direct connection with price. If any-thing have a high price so that demand is automatically have on low or high demand on low price.

Law of supply

Supply is another side which is also balanced by money and supplier interest. Supply is simply define that different - 2 quantity which a seller want to sale on different price list. Supply also related with a given time and given price list. Every supplier wants to sale more goods on high price.

On other words – supply has a direct co-relationship within price and supply. If any goods and supply have a high price than supplier increase their supply. If any product has a low price than supplier decrease their supply. For example – if apple have a price of Rs 10/kg then we supply 50 kg, on Rs 20/kg – 100 kg, on Rs 30/kg – 200 kg, on Rs 40/kg – 300 kg, on Rs 50/kg – 400 kg. if price increased from P to P1 than quantity also increased by Q to Q1.

  

Revenue in different types of market

Revenue in different types of market        

Pure competition – in this market every manufacturing produce same types of goods & services. There are lots of manufacturing units available in the market. Demand & supply balance the market and fix the price in the market. The price is also same in the whole market.

Revenue in Pure Competition

Monopoly or imperfect competition – in this market, only one manufacturing units available in the market and market demand is already given. Manufacture adjust its price its own. Average revenue is down in the slope and marginal revenue stand below its AR. Company know the demand and they sell the more quantity on a lower price that way MR below the AR.

Revenue in monopoly

Oligopoly – in this market, there are few manufacturing units and also their behaviour influences the other unit’s policy. If a company increases their price then other company not follows the same because consumer always prefer to buy a cheaper/low price things. In this market AR & MR are down in slope. MR put down or below the AR line but they are not in direct down but there are lot of kinks in the line.

Revenue in Oligopoly

                                                                                                                                                

Different types of Revenue

Different types of Revenue

Every company starts its business to earn profit. For this, a company manufactures different types of goods & services and sells in the market. In the production process, a company spent lot of expenses and after selling, a company earns revenue. So revenue is an important part of a business because excess revenue over expenditure is the profit of a company.

Different types of Revenue

Types of revenue –

Total Revenue – a company sells its all goods & services at a price, the amount that a company gets after selling all its goods & services that are called total revenue. For example – if a company manufacturing 100 units and sell at a price of 5 per units so total revenue is R= p*q (100*5=500)

Average Revenue – if a company divides its total revenue by the total manufacturing quantity, we get the average revenue. Like revenue/quantity or (R/Q or 500/5= 100). 100 is our average revenue.

Marginal Revenue – every increase in the revenue by increasing the selling quantity of goods and services, we call it marginal revenue.

Different types of Cost

Different types of Cost

Every production has a process and in this process a firm spent lot of different types of wages, we called it money cost like wages, raw-materials, equipment's, capitals good, rent, interest & different types of tax. All these types of cost are called accounting costs. Money costs are also called explicit costs.

Different types of Cost

Production cost – in production process, we include lot of cost and mostly we divide all cost in two parts, like –

ü  Variable cost – these are the cost which is related fully with our production process. If we increase our production, variables cost automatically increased with it, for example – wages, raw-materials, fuel or other production related costs. These costs have a direct co-relation with production. These cost decrease if our production decrease

ü  Total fix cost – those cost which is not related with production process. We also called them supplementary cost which does not changed according to the production level like rent, interest, depreciation or fix staff. A company must pay for these costs if they close their production. We also called them overhead costs.

Different types of Cost

ü  Real cost – in a production process, a society also sacrifices and do lot of efforts, we call it a real cost like saving by society/investor or sacrifices from leave by an employees.

ü  Opportunity cost – a cost which is related with resources used in different production opportunity, because our resources are rare & also have multiple used for different out- comes or things. In other words, it is a second best option for the use of rare resources. It include both explicit and implicit costs

Law of Return to Scale

Law of Return to Scale

Laws of return to scale describe the future relationship of all input and output. In the long run, we are able to bring change in our all fix and variable factor according to our requirement. If we are looking for a long term demand in particular so we are able to buy new land, new plant or hire new man power and meet the requirement. But this is for long run & we assume that we are able to make any changes in production line.

Law of Return to Scale

But we have some assumption for this like –

ü  All input are variables

ü  Clear road map for manpower and equipment are given

ü  No change in technology

ü  There are full competition

ü  Production are calculated in quantity

With these assumptions, we are able to bring change in our all input with-out a ratio. So we are able to bring a wide change in our production & with a high swing.

We have three stages for this –

1^st – Increase return to scale – in it, if we start increasing our input so our productions increase more than our input

2^nd – Constant returns to scale – when we continue increasing our input, after a stage our marginal production become equal with every new units and our total production have no multiple increment

3^rd – Diminishing return to scale – in final stage, our marginal production starts decline with every new unit. Our fix factor or fix equipment become less productive. There are also a lack of capital use and decision – making.