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Monopoly structure essay plan
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Essay plan/model structure for an essay on the topic of the monopoly market structure
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Introduction:- Define Monopoly: Where there is 1 large seller of a good/service and thus there is no
competition whatsoever
- Market structure of Monopoly:
1. Many buyers who are all informed of prices
2. One large seller A firm must be large enough to affect price: it is a price maker Rivals (if
any) must be small, otherwise they would respond strategically to the seller’s output
choice.
3. High Barriers to entry: Firms must be unable to enter the market
4. Differentiated products: When the seller is the only one, its product is unique. That is, it
is differentiated so much so that it has no close rivals
- Total welfare of the market is sum of consumer and producer surplus (CS and PS)
- Define CS
- Define PS
Main Body:
- Discuss Assumptions of Monopoly and what this implies/results in:
1. Buyers are price takers
2. Buyers and Sellers have complete information
3. Monopolist is a price maker: it can influence the price at which it sells as it is the one
large firm in the market:
A seller sells more when its price is lower: its demand curve slopes downwards
the seller’s output choice does not trigger a reaction from competitors (if there
are any)
4. Entry is Blocked: Barriers to entry prevent entry of new firms even in long run: these
barriers can be legal, structural or strategic
- Equilibrium under monopoly is determined by the marginal output and shutdown rule.
- For pure monopolist firm D curve = market D curve hence the D curve slopes downwards.
This D curve is also the AR curve hence D = AR = P. To sell another unit of output the price
has to fall of the good as we have assumed the monopolist cannot price discriminate and
can only charge one price which has 2 effects on TR:
1. TR increases as one extra unit sold at price P
2. TR decreases as price of all other units has to decrease to price P
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