Section -a q1

A monopoly exists when a company and its offerings dominate an industry. As a dominating power, it enjoys a degree of monopolistic dominance in the industry. But the degree is not same for all monopolistic market. The degree of monopoly power enjoyed by a firm in an industry is largely dependent upon the numerical coefficient (e) of the price-elasticity of demand for the monopolist’s product. The degree of monopolistic powers and coefficient of price elasticity of demand have an inverse relationship. Higher the price elasticity of demand in an Industry, lesser is the degree of monopolistic power enjoyed by the firm and vice versa.

The formula for calculating the degree of monopoly is given by Prof A P Lerner. As per Prof Lerner, the proportion of difference between the market price(p) and the marginal cost(MC) over the market price(p) gives the degree of monopoly powers enjoyed by a firm. The proportion is also known as Lerner’s index and is given as,