Equilibrium Of Firm Under Monopoly In Short Run

1. TR , TC Approach:-
                                     According  to this approach the firm is in Equilibrium position at the quantity where the difference between TR & TC is maximum.

=>> At B* slope of TR =  slope of TC.

At Point B & E the difference between  TR & TC is maximum and firms in Equilibrium position.
                                                 At this point profit is maximum
                                                        MR = MC

2. MR , MC Approach:-
                                      According to this approach the firm is in Equilibrium position where the MC and MR of firm are equal, and at that point profit is maximum.

Where MC = MR at that quantity the price can be determined by firm itself and at that point average revenue decides the price of the product.

=>> In Monopoly firm is a price setter under MR , MC approach. 

Type Of Barriers

Types of Barriers:

1. Natural Barrier/Economics of scale:-
                                                                An industry in which the Economics of scale are so large that a single firm can produce the product at lower average cost this would be possible if more then one firm produce that product..

2. Legal Barrier:- 
                              If Government allow only one firm to produce the product then this is a legal Barrier for the new firms.

3. Exclusive Control On RAW Material:-
                                                                   If there is exclusive control on RAW of material of specific product then that firm has Monopoly  in the production of such product

4. Higher Initial Cost:-
                                    If the initial cost to produce the product in higher then there is a barrier for new firms to enter in the Market.

5. Geographical Monopoly:-
                                             If Government does not allow the transportation of one good from one region to another region, then the firm  which is producing the product has Monopoly in the region.

6. Cartels:-
                 If a group of producers join together to maximize a profit, they work like a Monopoly.

Monopoly

Definition:
                 It is a Market structure in which firm decides the price and supply  of the product and there is no close substitute in the market.

Characteristics of Monopoly:


1. Number Of Sellers/Producers:-
                                                      In the Monopoly there is only one producer in the Market.
e.g:
        =>   In Lahore LESCO supply the Electricity.

2. Nature Of Product:-
                                    In Monopoly there is a unique product and there is no close substitute of that product in Market.

3. Entrance Blocks:-
                                 In Monopoly there are various entrance barrier for the new firm in the Market