Nobody downloaded yet

Micro Economics - Essay Example

Comments (0) Cite this document
Summary
Monopoly is a market where there is one firm catering to a large number of buyers. The firm sells a product which is unique and has no close substitutes. Monopoly markets have prohibitively high entry costs. The firm sets its price and quantities to maximize profits…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER97.2% of users find it useful
Micro Economics
Read TextPreview

Extract of sample "Micro Economics"

Download file to see previous pages The maximization of profits by a monopolist is shown in the diagram below. The necessary condition is that the marginal cost equals the marginal revenue and the sufficient condition is that the marginal cost curve has a greater slope than the marginal revenue curve at the intersection (Koutsoyiannis, 1975). Observe since the equilibrium price is higher than the average cost of production the equilibrium output, the monopolist makes a profit. This profit is shown as the shaded region in the diagram. Figure 1:Monopolist's equilibrium A typical reason for monopoly to occur is increasing returns to scale. If a particular firm has increasing returns to scale in any particular commodity, it has a natural advantage over any other firms in that market. This situation is known as natural monopoly. Monopoly can also occur through government regulation. There can be particular sectors in the economy that government run institutions run. Private entrepreneurship is not allowed. It may also be these industries require so high overhead costs private producers can’t afford it. The biggest disadvantage of monopoly is that it leads to exploitation of consumers. Particularly, this is true if the monopolist uses price discrimination to extract the entire consumers’ surplus. However, as first argued by Schumpeter (1950), the monopolist’s extraction of surplus is essential for economic growth. In competitive markets, the producers have to be content with zero profits. Investment returns are normal. Consequentially, the firm cannot invest in research and development which drives technological growth and innovation. However, since the monopolist is able to derive a surplus, it can invest this in research and development funds to attain technological competence. This is crucial for the monopolist or other big firms in order to retain their status as market leaders. And typically, technological innovation is what drives economic growth since it enables the resources of the economy to become more productive thereby breaking free of capacity constraints (Varian, 2006). Therefore, an economy can have benefits as well as damages if a monopolist is in charge of a particular market. Monopolistic competition however is a market which combines features of Monopoly as well as perfect competition. Monopolistic competition is a market comprising of numerous buyers and sellers. However, unlike perfect competition, here products are differentiated. Every seller thus is a monopolist for his own product (Ison & Stuart, 2006). The producers now are not mere price takers. They simultaneously set price and quantity to maximize prices. However, entry is costless and therefore as long as there are positive profits, new firms enter the industry. As a result, monopolistically competitive firms can only earn zero profits in the long run equilibrium (Varian, 2006). Typically, monopolistically competitive markets are what we observe the most in the real world (Koutsoyiannis, 1975). Markets start off with very few producers, but attracted by profits new firms enter. As competition intensifies, firms try to differentiate their products through advertising or introducing new varieties. The biggest advantage of monopolistic competition is that firms offer horizontally as well as vertically differentiated products and this results in better matches with consumer preferences. In the long run, there are no barriers to entering or exiting the market. As long as firms make supernormal profits, new firms ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Micro Economics Essay Example | Topics and Well Written Essays - 2000 words”, n.d.)
Retrieved from https://studentshare.org/environmental-studies/1412208-micro-economics
(Micro Economics Essay Example | Topics and Well Written Essays - 2000 Words)
https://studentshare.org/environmental-studies/1412208-micro-economics.
“Micro Economics Essay Example | Topics and Well Written Essays - 2000 Words”, n.d. https://studentshare.org/environmental-studies/1412208-micro-economics.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Micro Economics

Micro economics

...demand curve can be attained to be a shift in demand. Income Certain changes or alterations in income may mean increases or decreases in demand. A commodity whose demand tends to rise with a corresponding rise in income can be called a normal commodity. A commodity whose demand falls with a corresponding increase in income can be called an inferior commodity. This means that increases in income would tend to increase the demand for the mp3 player in the market. This is hence true since this is economically measures by economic experts in the economic field. Prices of other commodities Slight alterations or changes in the pricing of other commodities may result to a rise or fall in...
9 Pages(2250 words)Essay

Micro economics

..., in the year 2008 peak the growth rate of economy was less than 20.1% and in the year 2010, the overall growth rate is around 6.1% which shows a serious plunge during the great depression. International monetary fund issued a forecast about the growth rate in between 0.6% to 0.8 % and this is not considered as a gratifying rate. Since 2008, the government of UK has stimulated up to 380 billion pounds into the economic machinery to increase liquidity rates but due to the lack of “trickle down” effect, the money has not shown its benefits and didn’t reach the core level of the industries. Many unconventional and out of the way step and initiatives are being taken to solve the problem of liquidity. Massive job lose...
6 Pages(1500 words)Essay

Micro Economics

...? Micro Economics Introduction In an article posted in The Wall Street Journal, the hasreported that the Google has acquired around 82% of the online search market globally while almost ninety eight percent of the mobile search. Therefore the author has termed Google as being operating as a monopoly in the search market. The author refers that Google has been dominantly playing its role in the search market and is this dominance is favored by governments as they are not placing any restrictions on the practices adopted by Google. According to the author, the position acquired by Google in its market is where any business entity would desire to be. The article addresses that in order to ensure its...
3 Pages(750 words)Essay

Micro Economics

... of the Micro Economics When the firm's average total cost curve lies above its marginal revenuecurve at the profit maximizing level of output, the firm is experiencing losses and will have to consider whether to shut down its operations. The decisions taken by a firm in such situations is termed as Short-run shut down decisions. Short run equilibrium of a firm can be derived based on the total revenue and total cost and marginal revenue and marginal cost and marginal revenue and marginal cost. As firms are price-takers, each firm in an industry tries to maximize its profit by adjusting the output to a level where Marginal Cost (MC) =Marginal Revenue (MR). Profit is the difference between the total revenue obtained from sales... is...
4 Pages(1000 words)Essay

Micro economics

...Consumer behavior literally means how the consumer behaves. However, it has different meanings in marketing and in economics. In marketing, consumer behavior is defined as the study of the buying units and the exchange processes involved in acquiring, consuming and disposing of goods, services, experiences and ideas (Mowen & Minor). Consumers go through a series of decision making steps once the need is identified as shown below: The economic approach to consumer behavior delves into consumer demand analysis. The Theory of consumer demand is the analysis of demand with regard to consumer behavior and rationale when changes occur in variable factors such as price, income and substitute goods. Choice and...
4 Pages(1000 words)Essay

Micro Economics

... to conclude, it is pertinent to note that given the relative robustness of analysis and methodological advances, the conclusion of the Pratt & Hoffer (1984) article seems to be much more convincing and valid. References: Akerlof, George A., (1970). "The Market for Lemons: Quality Uncertainty and the Market Mechanism". Quarterly Journal of Economics 84 (3): 488–500. Bond, E.W., (1982) A Direct Test of the “Lemons” Model: The Market for Used Pickup Trucks, American Economic Review 72 (4): 836-840 Hoffer, G.E., and Pratt, M.D., (1984) Test of the lemons model: comment, American Economic Review 74 (4): 798-800... of the very strong implications of the existence of informational asymmetries in the presence of heterogeneous product qualities...
4 Pages(1000 words)Essay

Micro-Economics

... The Micro-economics Concepts Illustrated Through an Article Through the article, ‘Supply vs. Demand: Why Is Housing Hurting?’ of October 18, 2011, posted on the Wall Street Journal, the author, Mr. Nick Timiraos, questions the forces bringing about the supply-demand imbalance and confusion. The author starts by exclaiming, “is poor supply or low demand the biggest cause for concern in the contemporary housing market?” In answering the question, he points out that a part of the problem is due to the lack of enough buyers for homes in the US. This, he notes, is evident from the extremely low mortgage rates being offered. He also traces the confusion to the non-availability of attractive homes at many parts of the country, a case...  that is...
1 Pages(250 words)Essay

MIcro-Economics

...Microeconomics Microeconomics is the arm of economics that deals with the tendencies of how an individual or a firm arrives at decisions to allot limited resources (Glazer and Hirshleifer, 56). (Glazer and Hirshleifer, 57). In the attached article on the influence of coal on production of electricity, it is evident that the National thermal power corporation has shown trends of high increase in its Plant Availability Factor (PAF). This has been attributed to increase in the supply of coal. In the previous periods, the company has been recording low profits due unavailability coal. The first two months of the fourth quarter PAF was 95%. For the second and the third quarter the company recorded 83% and 85% respectively...
1 Pages(250 words)Essay

Micro economics

...Macro & Micro economics, Essay Topic: Micro economics Worker`s compensation laws are made to protect employees who get injured, disabled or even killed due to the negligence of the company. The company or the employers are usually held responsible for the behavior or performance of the employees. This is because it is believed that the employees are working on the orders of the employers or their responsibility depends on the type of their job. Under the federal employment compensation act, those employees who are either disabled or killed during the performance of their duties are provided compensation by the company. (Worker`s compensation, web). Compensation of an...
2 Pages(500 words)Essay

Micro Economics

... of the companies. Bibliography Fung, B. (2014, April 23). What the Apple wage collusion case says about Silicon Valley’s labor economy. Retrieved from Washington Post: http://www.washingtonpost.com/blogs/the-switch/wp/2014/04/23/what-the-apple-wage-collusion-case-says-about-silicon-valleys-labor-economy/ Schiller, B., Hill, C., & Wall, S. (2013). The Micro Economy Today. McGraw Hill/Irwin.... [Due Oligopoly is a market structure which involves a few firms producing a product or a service. When such a situation occurs, there is a chance that the few firms might collude to set a price or output level in order to maximize their profits. This means that the price will be higher than the market clearing price. Such firms operate for their own...
1 Pages(250 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Micro Economics for FREE!

Contact Us