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Macro and Micro Economics - Essay Example

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Macro and Micro economics Grade course 13th December, 2011. Market structures This paper involves analyzing different market structures. This is to measure their suitability for their use by Wonk’s. It involves an analysis of a monopoly and the benefits it brings to the stakeholders involved such as the government, consumers, producers and businesses as a whole…
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Macro and Micro Economics Essay
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Macro and Micro Economics

Download file to see previous pages... Monopoly is a market structure where a firm controls the industry in regards to output and prices and there are no close substitutes to the products. Monopolistic competitive is a market structure where there are many buyers and sellers who trade in a range of prices. This is because the sellers can differentiate their offers to different customers (Orbanes, 2007). Monopoly is not the best market structure to be considered in the current world of business. A monopoly has different benefits to the stakeholders such as the government, consumers, producers and businesses as a whole. Monopoly benefits to the producers and businesses are that it increases normal profits to abnormal profits. A monopoly produces at a lower output and sells at high prices. This reduces the marginal cost of the producer which increases the profits to supernormal profits. The businesses also benefit from a monopoly in that they produce at large scale which leads to economies of scale. The economies of scale will lead to a reduction in average cost, which will lead to, increase in profits. The economies of scale have potential gain in welfare to the producer. The large scale production will reduce the firm’s costs, which will result, to benefits in the long run. The shareholders also benefit from monopoly through receiving dividends, which result from, super normal profits. The firm benefit in terms of control meaning the firm controls the entire market which means it is the sole decision maker in the industry. The firm benefit for being the dominant one in the industry in that it decides on the prices of the products. The firms in the industry are price takers (Robinson, 1943). The firm does not suffer from over production because it produces below the equilibrium. The firm produces only what is required by the consumers. The benefits to the government that arise from the monopoly are as follows. The government earns high taxes this is as a result of the firm producing below the equilibrium. This leads to a deadweight loss from both consumers and producers which are transferred to the government as the taxes. These high taxes result from the company’s production at large scale. The monopoly benefits to the consumer are as follows. Production in large scale result to improvement in economic welfare, where consumers benefit from buying at lower prices as the producer increases profits. Improvement of products as a result of research and development consumers benefit by getting an improved product. This is as a result of a monopoly investing part of its super profits in research and development. The resources under monopoly are efficiently utilized. This is as a result of one firm in the industry, which produces below, equilibrium meaning it can not exploit the resources. Monopolies use price discrimination as one of their marketing method. This is a benefit to consumer in that consumers who earn low incomes benefit from buying at low prices. Those who earn high incomes pay high prices for the same commodity. Price discrimination increases a firm’s profits and increases its sales. The consumers also benefit from international where a monopoly experiences competition from international firms. This forces the monopoly to maintain low prices so as not to lose their share of market; therefore, consumers continue to enjoy low prices of commodities (Brady, 1979). After ...Download file to see next pagesRead More
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