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Bring out the salient features of a monopoly market model.

      

Bring out the salient features of a monopoly market model.

  

Answers


Wilfred
A monopolist market is a market with only one buyer of a commodity or resource/factor. Just as a monopolist has some freedom in fixing the price chargeable on the commodity sold, so is a monopolist in determining the price of the commodity bought. Monopoly exists in factor markets especially with employers? associations with trade unions. The monopolist will tend to employ less of a factor at (relatively) lower prices than in competitive markets; and this difference can be explained by way of a diagram as follows:
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Under normal competitive conditions, the equilibrium would be at the point of intersection between the marginal revenue product curve (MRP) and the supply curve (SS) i.e. point E, where the wage rate is OM and the quantity of Labor supplied is OX. However, in monopoly the wage rate ON is determined at point D where MC = MRP. To attract this quantity of labor (OW), the monopolist pays a wage rate OL. Thus, the monopolist wage is less than competitive market wage by an amount LM and the quantity of labor
employed falls below the market levels by WX. [The marginal cost curve (MC) bears the same relationship to the supply curve (SS) that a marginal cost curve (MC) bears to an average cost curve – in fact, the market supply curve of labor is the average cost curve. Clearly then if the supply (Average Cost) curve of labor is increasing, the marginal cost curve must lie above it.]

NB: Where there is an intensive bargain between the monopolist and, say, a trade union, the monopolist may be prevented from paying lower wages (like OL) i.e. moving from E to C and the income represented by the area LCDN is subject to the bargaining strength.
Wilfykil answered the question on February 7, 2019 at 06:45


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