Price and Equilibrium Under Monopoly

First of all know what is monopoly

Meaning of Monopoly

Monopoly is the situation of market in which there is only single seller of market. We can explain it with simple example. You have single seller of cooking gas or use petrol from one company only. So, this company seller is monopoly on the market. Monopoly word comes with two word. Mono means single and poly means control. If there is no substitute of goods and services and the seller in the market, it is the situation of monopoly. 

Price determination and equilibrium under monopoly

In monopoly, price will determined at the level where seller got highest profit. There will be the equilibrium under monopoly when seller will produce only quantity where he got maximum profit and at short period, he wants to minimize his loss. 

Price will equilibrium with two way in monopoly

1. Total revenue and total cost analysis

2. Marginal revenue and marginal cost analysis

Total revenue and total cost analysis

A seller under monopoly, can get highest profit when difference between his total revenue and total cost will highest.

Seller tries to determined different prices to know at what level of price, he got hight difference between total revenue (TR) and total cost (TC) 

Marginal revenue and marginal cost analysis

In short period, seller has no excess time to change the machine or technology. So, He can supply under his limited resources. So, he will produce where his marginal revenue will equal to marginal cost and at this point, he will be equilibrium and get super normal profit because AR > Ac

Normal profit 

If Production level MC = MR and if AR = AC, he will get normal profit 

Minimum Loss 

If demand is so low in short period, he has to decrease price. He will produce upto that period where he will get average variable cost. 

AR = AVC

And equilibrium will be where MR = MC