1 Long Term Equilibrium Diagram
In addition on the 5000
kg-$100 axis Average Revenue (AR) is greater than Average Cost (AC). Average
Revenue represents the price of each good. Average Cost is the average
cost of producing each and a very important point is that the Average Cost
contains Normal Profit. Normal Profit is the minimum amount required to
keep an entrepreneur in business. So any price charged above AC means that
the monopolist is charging supernormal profits. He can do this because
he has no competition; as if it were a competitive market the other firms
would force him to reduce his price to where AR = AC.
In the above diagram supernormal profits are earned between the points RZ.
Also known as statutory control, that is they are established by statute or law. Examples would be state enterprises where the state controls an operation such as CIE then entry by other transport firms is prohibited.
Control of Raw Materials
The Organisation of Petroleum Exporting Countries (OPEC) has since being set up in 1960 established a position where it dominates the world oil market. It is a classic example of a Cartel. The oil crisis of 1973 was precipitated by OPEC setting production limits on almost all the world’s oil supply resulting in a decline in supply and a rapid increase in price.
Economies of Scale
Simply the size of some industries is so large and capital intensive that it would be impossible for any firm to enter on a small scale. The possibility of the ESB being threated by competition in the near future is unlikely.
Control of a Secret
A firm with a special formula for making its product has a monopoly of it and would not disclose it because its position might be threatened.
Patents and Copyrights
These are probably the best examples of a monopoly. Anyone who holds a patent on a device has monopoly control on it and that excludes anyone else from uning it without his permission.