The ordinary monopoly is that market structure where there is a single supplier and the price of the product is unique. Thus, at the breakeven point, the quantity sold will be less compared to the perfect competition scenario. However, the fee charged for the good or service is higher.
In other words, in ordinary monopoly a reduction in supply is offset by an increase in price. So if the units sold are reduced, for example, by 10%, the revenue will be able to rise by a higher percentage. This, compared to the competitive market.
Characteristics of the ordinary monopoly
Among the characteristics of the ordinary monopoly are:
- The merchant does not know how much his customers are willing to pay. That is, it does not have perfect information. Therefore, your income will be less than in a monopoly with price discrimination.
- To calculate the rate to be charged, the monopolist equates marginal revenue to marginal cost. The result is greater than that of a competitive market where the equilibrium price is taken as given and based on this the quantity to be sold is determined.
- In the ordinary monopoly the merchant operates in the inelastic zone of the demand curve. This means that the quantity supplied will continue to decrease as long as the price increases more than proportionally.
Ordinary monopoly example
An example of an ordinary monopoly might be a person who rents all the apartments in a building. The monthly fee paid by tenants is unique. Furthermore, the landlord does not mind leaving some housing units unoccupied.
However, if it were perfect competition and there were different lessors, the equilibrium price would be lower than with an ordinary monopoly. Also, the occupation of the property would be total.
Meanwhile, a discriminating monopolist would charge a different price to each tenant. Thus, he would receive more income than an ordinary monopolist and would not leave any apartment unrented.
In the following graphic representation we can observe an ordinary monopoly, where p1 is the price to be charged and q1 is the number of units sold. The supply curve is vertical because we are taking as a reference the example presented previously. In that particular case the quantity supplied is fixed, for example 100 apartments.
In perfect competition, on the other hand, the equilibrium price and quantity would be p2 and q2.