monopoly

Examples of monopoly in the following topics:

• Government Action

  • There are two types of government-initiated monopoly: a government monopoly and a government-granted monopoly.
  • There are instances in which the government initiates monopolies, creating a government-granted monopoly or a government monopoly.
  • Government-granted monopolies often closely resemble government monopolies in many respects, but the two are distinguished by the decision-making structure of the monopolist.
  • In a government-granted monopoly, on the other hand, the monopoly is enforced through the law, but the holder of the monopoly is formally a private firm, which makes its own business decisions.
  • In a government monopoly, an agency under the direct authority of the government itself holds the monopoly, and the monopoly is sustained by the enforcement of laws and regulations that ban competition or reserve exclusive control over factors of production to the government.

• Defining Monopoly

  • A monopoly is a specific type of economic market structure.
  • Profit maximizer: a monopoly maximizes profits.
  • Price maker: the monopoly decides the price of the good or product being sold.
  • High barriers to entry: other sellers are unable to enter the market of the monopoly.
  • In a monopoly, specific sources generate the individual control of the market.

• Reasons for Efficiency Loss

  • A monopoly exists when a specific enterprise is the only supplier of a particular commodity.
  • Monopolies have little to no competition when producing a good or service.
  • A monopoly is less efficient in total gains from trade than a competitive market.
  • In the case of monopolies, abuse of power can lead to market failure.
  • This graph shows the short run equilibrium for a monopoly.

• Natural Monopolies

  • Natural monopolies occur when a single firm can serve the entire market at a lower cost than a combination of two or more firms.
  • For example, imagine there are two firms in a natural monopoly's market and each of them produces half of the quantity that the monopoly produces.
  • The total cost of the natural monopoly is lower than the sum of the total costs of two firms producing the same quantity .
  • Natural monopolies tend to form in industries where there are high fixed costs.
  • Examples of natural monopolies are water and electricity services.

• Monopoly Production Decision

  • To maximize output, monopolies produce the quantity at which marginal supply is equal to marginal cost.
  • A pure monopoly has the same economic goal of perfectly competitive companies - to maximize profit.
  • Nonetheless, a pure monopoly can – unlike a firm in a competitive market – alter the market price for its own convenience: a decrease of production results in a higher price.
  • Like non-monopolies, monopolists will produce the at the quantity such that marginal revenue (MR) equals marginal cost (MC).
  • In short, three steps can determine a monopoly firm's profit-maximizing price and output:

• Regulation of Natural Monopoly

  • Natural monopolies are conducive to industries where the largest supplier derives cost advantages and must be regulated to minimize risks.
  • As a result, monopolies are generally viewed as illegal entities.
  • In extreme circumstances it is also a viable option for governments to break up monopolies through the legal processes.
  • While the concept of a monopoly is generally perceived as a threat to free markets, there are specific circumstances where natural monopolies are either pragmatically useful (cost effective) or virtually unavoidable.
  • While monopolies are generally poor economic constructs for creating value, natural monopolies are predicated on the fact that a single supplier can achieve the greatest economies of scale (cost advantages).

• Resource Control

  • Control over a natural resource that is critical to the production of a final good is one source of monopoly power.
  • A classic example of a monopoly based on resource control is De Beers .
  • It convinced independent producers to join its single channel monopoly.
  • In practice, monopolies rarely arise because of control over natural resources.
  • For most of the 20th century, De Beers had monopoly power over the world market for diamonds.

• Social Impacts of Monopoly

  • A monopoly can diminish consumer choice, reduce incentives to innovate, and control supply to enforce inequitable prices in a society.
  • Through utilizing this control strategically, a profit-maximizing monopoly could create the following societal risks:
  • As a result, no competition will provide the monopoly very little reason to improve internal inefficiencies or cut costs.
  • As a result, a monopoly causes deadweight loss, an inefficient economic outcome.
  • Outline the effect of a monopoly on producer, consumer, and total surplus

• Marginal Revenue and Marginal Cost Relationship for Monopoly Production

  • For monopolies, marginal cost curves are upward sloping and marginal revenues are downward sloping.
  • Monopoly production, however, is complicated by the fact that monopolies have demand curves and MR curves that are distinct, causing price to differ from marginal revenue .
  • The marginal cost curves faced by monopolies are similar to those faced by perfectly competitive firms.
  • The marginal revenue curve for monopolies, however, is quite different than the marginal revenue curve for competitive firms.
  • In a monopoly market, the marginal revenue curve and the demand curve are distinct and downward-sloping.

• Market Differences Between Monopoly and Perfect Competition

  • A monopoly, on the other hand, exists when there is only one producer and many consumers.
  • Public utility companies tend to be monopolies.
  • Monopoly power comes from markets that have high barriers to entry.
  • Monopoly and perfect competition mark the two extremes of market structures, but there are some similarities between firms in a perfectly competitive market and monopoly firms.
  • This creates a monopoly.