Free Mba Semester 1 Solved Assignments For -MB0042- Q. Monopoly is the situation there exists a single control over the market producing a commodity having no substitutes with no possibilities for anyone to enter the industry to compete. In that situation, they will not charge a uniform price for all the customers in the market and also the pricing policy followed in that situation.

Solutions: Monopoly: Monopoly means existence of a single seller in the market. Monopoly is that market form in which a single producer controls the whole supply of a single commodity which has no close substitutes. Monopoly may be defined, as a condition of production in which a single firm has the power to fix the price of the commodity or the output of the commodity. It is a situation there exists a single control over the market producing a commodity having no substitutes with any possibilities for anyone to enter the industry to compete.

Features of Monopoly:

·         Anti-thesis of competition – Absence of competition in the market creates a situation of monopoly and hence, the seller faces no threat of competition.

·         Existence of a single seller – There will be only one seller in the market who exercises single control over the market.

·         Absence of substitutes – There are no close substitutes for the seller’s product with a strong cross elasticity of demand. Hence, buyers have no alternatives.

·         Control over supply – Seller will have complete control over output and supply of the commodity.

·         Price maker – The monopolist is the price maker and in taking decisions on price fixation, he or she is independent. He or she can set the price to the best of his or her advantage.

·         Entry barriers – Entry of new firms is difficult. Hence, monopolist will not have direct competitors in the market.

·         Firm and industry is same – There will be no difference between the firm and an industry.

·         Nature of firm – The monopoly firm may be a proprietary concern, partnership concern, Joint Stock Company or a public utility which pursues an independent price-output policy.

·         Existence of super normal profits – There will be opportunities for supernormal profits under monopoly, because market price is greater than the cost of production.

Kinds of Price Discrimination: The policy of price discrimination refers to, the practice of a seller to charge different prices for different customers for the same commodity, produced under a single control without corresponding differences in cost.

Three kinds of price discrimination are commonly seen. It is as follows:

·         Discrimination of the first degree – Under price discrimination of the first degree, the producer exploits the consumers to the maximum possible extent, by asking to pay the maximum he/she is prepared to pay rather than go without the commodity.

·         Discrimination of the second degree – In case of discrimination of the second degree, the monopolist charges different prices for markets of the same commodity, but not at a maximum possible rate but at a lower rate.

Discrimination of the third degree – In case of discrimination of the third degree, the markets is divided into many sub-markets or subgroups. The price charged in each case roughly depends on the ability to pay of different subgroups in the market.