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Monopoly and Monopoly Power in Microeconomics - Admission/Application Essay Example

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The essay talks about monopoly, as a form of market structure, and elucidates on the inefficiencies of monopolistic market. A market structure is a situation, where there are many firms in the market and they produce identical products. A monopoly exists, when there is only supplier in the market…
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Monopoly and Monopoly Power in Microeconomics
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Download file to see previous pages A small business unit also may have the monopoly power. When there is only one firm in the market it is quite unlikely that it would accept the market price. It will have the potential to recognize the influence it can have on the market and set the price accordingly. It will choose that level of output which will maximize the profits. One can view as the monopolist choosing the price and allowing the consumers to choose the quantity they wish to buy or the monopolist can limit the quantity and allow the consumers to decide the price they wish to pay. The first approach is probably more natural while the second approach is more convenient analytically. A certain business can take a particular share of the market through integration which is two types-horizontal and vertical. The former type indicates a situation when two businesses which are operating in the same industry collide to one at the same stage of production. The later form of integration refers to acquiring a business at different stages of production in the same industry (Causes of monopoly). A natural monopoly is said to exist when high initial costs is associated with the starting a business. In some cases it is most efficient for the production process to be concentrated on a single firm. Since it is efficient to continue with natural monopolies the governments or the authorities regulate the operative ones to enhance the welfare of the consumers. Absolute monopoly occurs when a single seller operates in the market and there are no close substitutes. A monopolist maximizes its profits by producing at the point where marginal revenue equals marginal cost. The monopolist can accrue maximum revenue at the point where marginal revenue is zero. Normal profit occurs at...
This essay presents a thorough theoretical analysis of the monopolistic market, and discovers the impact of the monopoly on consumers and economy, as a whole
A monopoly is said to exist when there is only supplier in the market. Thus monopoly is characterized by lack of competition. Size of the business is immaterial in characterizing monopolies. A small business unit also may have the monopoly power. When there is only one firm in the market it is quite unlikely that it would accept the market price. It will have the potential to recognize the influence it can have on the market and set the price accordingly. It will choose that level of output which will maximize the profits. The impact of the monopoly can be evaluated through welfare analysis. The monopoly market employs less people than the competitive market. As the level of output is lower in the market of monopoly, the level of employment is also lower
Market failure is one of the characteristics of the monopoly market. Monopolies are generally undesirable on the part of the consumers as it leads to price increase and they are more likely to be inefficient. There are some benefits to monopoly as well. The firm operating in the operating in the monopoly market can produce at low costs because of economies of scale and pass on the savings to the consumers. The savings accrued can also be used to increase profits and so there is little incentive for this kind of behavior. The monopolists may involve themselves in new innovations once they are protected from competition.
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