In the segment of perfect competition, we pursue the monopoly enterprise as one that maximises profit. In this segment, we scrutinise this profit-maximising trait to decide the amount manufactured by a monopoly enterprise and the cost price at which it is sold.
Let us presume that an enterprise does not maintain stocks of the amount manufactured and that the entire amount manufactured is kept up for sale.
Simple Case of Zero Cost
Presume that there exists a suburb situated adequately far away from the other suburbs. In this suburb, there is only one pond from which water is obtainable. All residents rely on this pond for their water necessities. The person who owns this pond is able to stop others from drawing water from it except through buying the water. The person who pays can draw the water out of the pond.
Hence, the owner of the pond is a monopolist enterprise that endures zero cost in manufacturing the commodity. We shall scrutinise this easy scenario of a monopolist enduring zero cost to decide the amount of water sold and the cost price at which it is being sold.
Comparison with Perfect Competition
We can now compare the given result with the result when sorted under a perfectly competitive market structure. Let us presume that there is an infinite number of such ponds. Suppose a pond owner decides to charge ₹5 per bucket of water. Who would be willing to purchase from him?
Recall that there are many pond owners. Any other pond owner can attract all the purchasers that are ready to buy for ₹5 per bucket by offering them a lower cost price, say, ₹4 per bucket.
This concept was about the short-run equilibrium of the monopoly firm. To learn more about such concepts, stay tuned to our website.