Essay about Economics of a Monopoly - 1506 Words

Economics of a Monopoly Introduction  ¡Ã‚ §Monopoly ¡Ã‚ ¨ is defined by its market power. Monopolies are always known to possess an exclusive control over its particular market and that gives them the sovereign authority to control the prices for its goods or services (Dictionary.com Unabridged (v1.1), 2006). Hence, they represent the market. They indeed have detrimental effects on consumer and social welfare. In this paper, section 1 will focus on the theory and economics of a monopoly. Section 2 will discuss with a recent case of monopoly, as in the web search engine company- Google, whose real repercussion is still not clear to most consumers. Finally this essay will conclude with the outlook on how world markets are opening up to each†¦show more content†¦In figure 1, MR is the marginal revenue which is the price of the last unit sold; minus the loss of revenue incurred of those units it could have otherwise sold at a higher price (Sloman, 2005).AR is the average revenue curve. Both the average and the marginal revenue are downwards sloping as in a competitive firm. It should be noted that AR=P, thus price to quantity is same as the average revenue to quantity. MC=AR where the profit is at the maximum, at an output of Qm (Sloman, 2005).The demand curve is the price given.AR=P, the price at Qm.AR-AC is the supernormal profit gained .Point b pertains to average cost (AC) (Sloma n, 2005). 1.2 Monopoly against perfect competition To understand better how the monopoly affects the market, we need to compare monopoly to perfect competition. Where there is perfect competition, the company is unable to decide the price of their product. In other words, the company has to label their prices according to the prices of their competitors. However, in a monopoly, they decide the prices and that too, at a much higher price with a different output compared to a competitive industry (Sloman, 2005).Some key points are given under: „X  ¡Ã‚ §Lock-in effect ¡Ã‚ ¨ arises when consumers are unable to switch to other competing aftermarket products, other than the manufacturer ¡Ã‚ ¦s aftermarket products, because of theShow MoreRelatedThe Economic Theory Of Monopoly And Monopoly1097 Words   |  5 Pagesdefined a dominant market position as: ‘...a position of economic strength enjoyed by an undertaking which enables it to [†¦] behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers’ Does this definition make economic sense? How should it be interpreted in the light of the economic theory of monopoly and oligopoly? 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