Form of market structure: Monopoly - Essay Example

Therefore, the customers are worse off as they have to pay more while the monopolists benefit along with their employees.  For the economists, on the other hand, the objection against monopoly is that the economic welfare of the entire society is reduced as opposed to separate groups of customers and suppliers. This is because when monopolists raise prices, customers respond by buying less of the products and this result in reduced economic welfare.  During the 17th-18th century, it was believed that all monopolies would be broken by the entrance of competitors in the market except those supported by the government.

The governments tried to keep the competitors away from these monopolies through the introduction of certain policies and measures. Even today, many monopolies are dependent on government policies especially in the United States. Monopolies existing without favorable government policies are due to the smallness of markets rather than polices.  Other reasons for the existence of monopolies include some new technology or innovations in the market. Today, economists try to restrain the government from granting exclusive rights and privileges.

  Another key point in this article is that the concept of a monopoly is changing as economists have come up with new terms such as oligopoly and monopolistic competition. Traditionally, monopoly was thought of as a single supplier with few rival competitors. However, today the economists are viewing the concepts of competition and monopoly differently. The new concepts of perfect competition and oligopoly are gaining support due to the benefits of competition for the society as a whole. In this article, two major economic concepts have been used including demand and supply as well as various forms of market structures.

The concept of demand and supply in relation to this article could be understood with the help of an example. A monopolist fixes a price over and above the fixed costs of production of the company. If the fixed cost is $10 then the monopoly would charge higher than $10 to make a profit. However, the increased price may lower the demand and hence, the profit for the company. If the demand at $10 is 300 then the revenue for the monopoly would be $3000. If the price is $7 and demand is 400 then the revenue is 2800 and so on.

This example shows the basic premise of the demand function that an increase in price would reduce demand. In contrast, a higher price would motivate other suppliers to supply more to gain more revenue. Market structures include the characteristics as well as the composition of business entities. These structures, as stated above, include