MODEL ANSWER

Name: - Ameesha Chhajer.

Roll No: - 97 Class: - 1
st
Semester Sec: - B
Subject: - Micro and Macro Economics MME!
Colle"e: - #.$. Birla %nstitute $e&artment '( Mana"ement!
).! *hat is mono&ol+ &o,er- *hat are its sources-
Ans.! Mono&ol+ &o,er is the de"ree o( &o,er held b+ the seller to set the &rice (or a
"ood. A mono&ol+ &o,er is de(ined as the abilit+ o( a business to control a &rice ,ithin
its rele.ant &roduct mar/et or its "eo"ra&hic mar/et or to e0clude a com&etitor (rom
doin" business ,ithin its rele.ant &roduct mar/et or "eo"ra&hic mar/et. %t is onl+
necessar+ to &ro.e the business had the 1&o,er1 to raise &rices or e0clude com&etitors.
2he &lainti(( does not need to &ro.e that &rices ,ere actuall+ raised or that com&etitors
,ere actuall+ e0cluded (rom the mar/et. the less elastic the demand cur.e3 the more
mono&ol+ &o,er a (irm has.
2he .arious sources o( mono&ol+ &o,er are as (ollo,s:
1. 2he elasticit+ o( mar/et demand- because the (irms demand ,ill be at least as
elastic as mar/et demand3 the elasticit+ o( mar/et demand limits the &otential (or
mono&ol+ &o,er. %( there is onl+ one (irm- a &ure mono&olist3 its demand cur.e is
the mar/et demand cur.e. %n this case3 the (irm4s de"ree o( mono&ol+ &o,er
de&ends com&letel+ on the elasticit+ o( mar/et demand. Because the demand (or
such commodities such as co((ee3 cocoa3 tin and co&&er are much more elastic3
attem&ts b+ &roducers to carteli5e these mar/ets and raise &rices ha.e lar"el+
(ailed. %n each case3 the elasticit+ o( mar/et demand limits the &otential mono&ol+
&o,er o( indi.idual &roducers. Because the demand (or oil is (airl+ inelastic in
the short run!3 '6EC could raise oil &rices (ar abo.e mar"inal &roduction cost
durin" 19774s and earl+ 19874s.
9. 2he number o( (irms in the mar/et- i( there are man+ (irms3 it is unli/el+ that an+
one (irm ,ill be able to a((ect &rice si"ni(icantl+. 'ther thin"s bein" e:ual3 the
mono&ol+ &o,er o( each (irm ,ill (all as the number o( (irms increases: as more
and more (irms com&ete3 each (irm ,ill (ind it harder to raise &rices and a.oid
losin" sales to other (irms.
;. 2he interaction amon" (irms- e.en i( onl+ t,o or three (irms are in the mar/et3
each (irm ,ill be unable to &ro(itabl+ raise &rice .er+ much i( the ri.alr+ amon"
them is a""ressi.e3 ,ith each (irm tr+in" to ca&ture as much as it can. Su&&ose
there are < (irms in a mar/et. 2he+ mi"ht com&ete a""ressi.el+3 undercuttin" one
another4s &rices to ca&ture more mar/et share. 2his could de&ri.e &rices do,n to
nearl+ com&etiti.e le.els. Each (irm ,ill (ear that i( it raises its &rice it ,ill be
undercut and ,ould lose its mar/et share. As a result it ,ould ha.e little
mono&ol+ &o,er.
<. 2he interaction amon" (irms- e.en i( onl+ t,o or three (irms are in the mar/et3
each (irm ,ill be unable to &ro(itabl+ raise &rice .er+ much i( the ri.alr+ amon"
them is a""ressi.e3 ,ith each (irm tr+in" to ca&ture as much as it can. Su&&ose
there are < (irms in a mar/et. 2he+ mi"ht com&ete a""ressi.el+3 undercuttin" one
another4s &rices to ca&ture more mar/et share. 2his could de&ri.e &rices do,n to
nearl+ com&etiti.e le.els. Each (irm ,ill (ear that i( it raises its &rice it ,ill be
undercut and ,ould lose its mar/et share. As a result it ,ould ha.e little
mono&ol+ &o,er.

BIBLIOGRAPHY
1. Class Notes.
2. Micro-Economics = 6ind+c/.
3. Micro Economics- >di&to Ra+.