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Monopoly - Coggle Diagram
Monopoly
How does it come to be a monopoly?
One firm owns all the patents
Owns the distribution chain
High fixed cost or high cost of producing
In this situation it beneficial for the economy that one firm exists and produces every product in the supply
For eg: Electricity supply,to build a power plant ,transmission towers and grids is extremely costly
But it is better if one firm takes up all the costs because with increase in production the costs will go down
If other firms also enter the market ,they will have to initially bear all the high fixed costs and as the sources of supply are more the prices will go down
Profit In Natural Monopoly
Demand=DemandOfTheEntireIndustry
MRAndMC
Price Set is the highest price consumers are willing to pay ,hence the line is extended to meet the demand curve
Loss when ATC is higher then SP
In case of competition ,supply will be MC ,hence SP will come down
DeadWeight Loss
Consumer Surplus
Price Consumer Willing To Pay-Price Paid
Producer Surplus
Price Received -Price Willing To Accept
Benefit To Society
In Monopoly
Deadweight Loss(in Green)
Regulation in Natural Monopoly
Natural Monopoly means the fixed costs are so high that only one seller exists
Profit is very high
Government regulates the price by setting the price at marginal cost
Government sets price at ATC ,no profit no loss
