monopoly

monopoly

                       

Since monopoly firm is the only firm in the market, the firm’s demand curve is also the market demand curve, P = D = AR. The demand curve is a downward sloping line. A monopolist will produce at a point where MR = MC because that is the profit maximizing output. However, the price will be charged at higher than AC to reap supernormal profit. 

Electricity can be classified as essential utility. The demand for electricity is relatively inelastic demand as the change in price do not directly affect the quantity demanded. Therefore, the demand curve look steep as shown in the graph.  For example, when the price of electricity rises up, consumers has no choice but to accept the fact. (TNB, 2011)

Graph 2

Malaysia GDP growth was expected to increase by 4.3% in 2013 and with population of 29 million. (The Star, 2013) With that figure, the demand for electricity is expected to increase by five to six percent in the next two years. 

                               

 At this price (P3), demand is more than supply. Consumers are willing to pay more than TNB is willing to supply. This can be result from the rise of production cost when government planned to remove the subsidy on electric. It is estimated that if the subsidy is removed, the true cost of power will exceed 40 sen per kilowatt-hour (kwh) compared with the current rate of 33. 54 sen/kwh (New Straits Times, 2013).