company began to have the same angle, as the average cost curve called the EXPERT do.

To understand why it is so socially important for a price to be equal to marginal costs, we will bypass some speculations and assume that the price exceeds the marginal costs matching an equilibrium state. It would mean that some society appreci- ates an additional item more than the previous one. However, if the industry produces an additional item of production at a price exceeding marginal costs, it contradicts the law of effi- ciency, as in this case, social welfare would grow in accord­ance with the increase in output. However, as it happens in a competitive industry, if the price is equal to marginal costs, the industry will produce goods in the quantity satisfying a socially effective level.

prise, being a receiver, can maximize the profit only through changing the production volume, whereas a monopolist can achieve this goal through changing either the production vol­ume, or the price level. Certainly, it cannot change the volume of the production and the price independently, as their ratio is unambiguously predetermined by the function of the demand and doesn’t depend on the independent variable.

The model of monopoly (as well as the model of perfect competition) is based on a number of assumptions.

1. Lack of perfect substitutes. A monopolistic enterprise can produce both similar and different products, but in either case, these products supplied have (from buyers’ point of view) no substitutes. Of course, all consumer goods are interchangea­ble in the sense that all of them compete and compete for buy­ers’ money. However, if the goods produced by an absolutely competitive enterprise have perfect substitutes supplied by oth­er enterprises of the same industry, substitutes of the goods produced by a monopolist are less perfect. In other words, the cross elasticity of demand between products of the monopolist on the one hand, and any other goods on the other hand, is ei- ther equal to zero, or is negligibly small:

2. No freedom to enter the market. The monopoly can exist only if other companies’ entry to the market is unprofita­ble or impossible. If other enterprises manage to enter the in- dustry, the monopoly will disappear for sure. Therefore, an availability of entrance barriers is a compulsory tool that makes a monopoly able to appear and operate. Entrance barriers are numerous and various:

tions of net monopoly can be true and even typical of a local scale, for example within a small city. In a city like that, there is only one power plant, one railroad and airport, one bank, one large enterprise, one bookstore, etc. In the USA, 5 % of the GDP is created under the conditions that are very similar to those of perfect monopoly.

Other business-monopolies — those operating under the conditions of a command system. This type of monopoly in-

volves the state’s ownership of the means of production; it functions under the conditions of both tough organization of the market and commodity deficiency. The command system is typical of closed economies and relies on the import monopoly of the state. An essential characteristic of this system is direct distribution of all main resources, which also serves as a strong incentive for administrative monopoly. The tendency to trans­form a whole industry into one huge plant is its resulting effect.

It is obvious that competition threatens an administrative

While a firm, operating under the conditions of perfect competition, can decide only on its production volume (the price is set on an exogenous basis), a monopolist can set not only the production volume, but also the price rate.

Therefore, the price exceeds the marginal income. While P=MR under the conditions of perfect competition, P> MR in a monopolized market.

To properly understand the price strategy of a monopolist, it is necessary to establish a kind of interrelation of the demand elasticity taking into account the price and revenues: when the demand is elastic, a decrease in price ensures an increase in total revenues; when the demand is not elastic, a decrease in price causes a decrease in aggregate income (Figure 2.7).

Under the conditions of perfect competition, price fixation can be represented in the following way (Figure 2.8).

the steady-state (equilibrium) price Pe are possible at the E point. The area 0BEQe equals the amount of the producers’

costs (Pm> of MC), the number of extra consumers and extra

producers changes. The area of the triangle AVA represents the amount of net losses suffered as a result of the monopoly pow­er, or, in other words, the quantity of the so-called dead weight of monopoly.

Monopolistic prices are usually considered to be the highest ones. As a rule, they are truly higher than competitive prices. However, it is necessary to remember that a monopolist aims at maximizing an aggregate income, but not the profit coming out of a single item. Besides, which is very important, an increase in prices is not unlimited, it is limited to the price elasticity of the demand for the products of this firm (Figure 2.1).

According to another sterotipic opinion, a monopolist is alleged to usually aim to limit the production level. It is not always the case, either. The more monopolized the industry becomes, the more changes it often faces in terms of the costs and demand. Costs are affected by two opposite factors — both increasing and decreasing ones. One of them is referred to as a decreasing one because when a monopoly appears it is possible to take a better advantage of the positive effect of the growth of the scale of production (cash-savings of the fixed costs, centralization of the supply and sales, economy of marketing transactions, etc.). On the other hand, there is also a tendency leading to their increase connected with the expansion and bureaucratization of the administrative personnel, weakening of incentives for innovations and risk, in general. H. Leybenstayn signified this tendency as the X-inefficiency.