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Monopoly: The Incorruptibles, Inc

The document discusses monopolies, which occur when a single firm controls the entire market for a good or service and there are significant barriers to entry for potential competitors. It provides examples of monopolies such as electricity distribution and notes advantages like preventing overproduction and allowing prices to decrease over time through economies of scale. The document also examines the relationship between marginal revenue, demand, and costs for a monopoly and how it can earn abnormal profits in the long run.

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Penchal Doggala
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86 views15 pages

Monopoly: The Incorruptibles, Inc

The document discusses monopolies, which occur when a single firm controls the entire market for a good or service and there are significant barriers to entry for potential competitors. It provides examples of monopolies such as electricity distribution and notes advantages like preventing overproduction and allowing prices to decrease over time through economies of scale. The document also examines the relationship between marginal revenue, demand, and costs for a monopoly and how it can earn abnormal profits in the long run.

Uploaded by

Penchal Doggala
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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MONOPOLY

The
Incorruptibles, Inc.
Market Background:
Monopoly
One powerful firm controlling the market

Very difficult to enter market

Goods are “unique”, no available substitutes

No consumer sovereignty
Monopolizing

 Controlling all resources

 Not allowing other firms to enter market

 Providing a unique product

 Absolute control over market price


Modern Day Example

Electricity:
 Controlled by one firm

 Efficiently distributed to consumers

 Unaffected by the economic recession

 A MONOPOLY
Marginal Revenue and Demand
Price/ •One of a kind on the market
cost •D and MR really steep
•a maximum revenue

a
P1

AR = D

Q1 Quantity
MR
MC, MR and AR (D)
Price/ MC •MR and AR really steep
Cost Profit with lower
output
•b (MC=MR) maximum
output
•b both short run and
long run equilibrium since
no other company can
enter the market

P2 b

MR AR = D

Q2 Quantity
Normal profit
Price/ MC
Cost
AC

MR AR = D

Q Quantity
Abnormal Profit
Price/ MC Abnormal
Cost profit

AC
P

MR AR = D

Q2 Quantity
Loss
AC
Price/ MC
Cost

C
Loss
P

MR AR = D

Q2 Quantity
Advantages of Monopolies.

-A monopoly has complete control over their market


therefore:
a) Over-produce can be prevented
b) Prices will lower over time as a result of Economy of
Scale
c) Abnormal profit is common even in the long run.
d) Production is more efficient and profitable.
Why Monopolies are Strong.

 Cost advantage – Economies of scale

 Control over supplies

 Fear of reaction, eg. Price war

 Control over outlets

 High entry barrier.


Grades => Profit.

 Grades are a necessity for many students.

 Parents will pay for grades.

 Creates competition/higher standard for grades.

 Prices can regulate demand and standard.

 Grades are intangible.

 Grades in CA are already inflated.


Examples of successes.

 Google as a search engine.

 The spice trade in 1600s.

 Food and beverages in USJ

 Cheap products in China

 Documentation from the Government


Why we’re better.

 Perfect  Oligopoly
Competition  Not as much market
 Low amount of funds
power as a monopoly.

 Not as much control on


 No influence on price: no
market power. prices.

 Price takers.
 Numerous substitutes
available.
 Collusion
Why we’re better (cont.)

 Monopolistic competition
 Insignificant, small influence on market.

 Branding/advertising required.

 Minimal research and development.

 Neither productive nor allocative efficiency is


achieved.

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