The Monopoly of Wonks - Essay Example

THE MONOPOLY OF WONKS INSTRUCTOR’ S NAME DATE SUBMITTED THE MONOPOLY OF WONKS COMPANY Colander, David C. (2003).A market is condition whereby a potential seller of a commodity meets a potential buyer and a means of exchange is available. We have several types of market structures namely; perfect competitive, monopoly, oligopoly, and monopolistic competition e.t.c. Colander, David C. (2003). Monopoly is an economic situation in which there is only single seller, a producer or a supplier of a commodity or a service. For a monopoly to be effective their must be no particle substitutes for the product or service sold. Example of a monopoly firms include electricity and energy providers. A monopolistic competitive market is a market condition where there are many firms selling similar but differentiated products. Example includes toothpaste and soap producers. BENEFITS TO WONK’S SHAREHOLDERS Benefits to business, I.e. the Company itself. (i) Economics of scale; this advantage will help Wonks company to increase its output which will result to a decrease in the average cost of production. Less cost of production will minimize the company expenses. (ii) The company will be the price maker and it will control the entire market. If the firms operate as a monopoly, it fixes the selling price of its commodities. (iii)Research and development; Wonks company will make supernormal profits in the end. This will enable the firm to fund high cost capital investment spending. Successful research may be used to improve on products and lower cost in the long-term. (iv) The company will have no risk due to over production. The company will only produce the commodities that they have ready market since it will have already identified its customers. Benefits accrued to the government. The government will have a chance to regulate different varieties of products at the same time to prevent exploitation of the consumers by the firm. This will save the government spending on check-ups. The government will also be able to tax the company easily. The government gets much tax revenue in the monopoly companies than in monopolistic competition. In the monopolistic market are free to enter and leave at any time since there are no legal barriers. Lack of restrictions demolishes government effort to collect tax revenue from all the stakeholders. Their will be efficiency use of resources. The government will always try to achieve a full employment economy and through monopoly power, it can manage to achieve this objective. Benefits to Consumer. Consumers are likely to buy chips in lower prices since Wonks will be enjoying economics of scale, its production cost will lower transferring this to consumers by charging less cost per unit of potatoes sold. Consumers will be protected from been exploitation by the Wonks. Wonks will be a monopoly will be required to have a proper standard measures to its products. Consumers will enjoy the benefit of doubt that they will never lack chips products. Wonks been a monopoly will be a going concern entity. CHANGES IN REGARDS TO PRICE AND OUTPUT IN BOTH MARKET Monopolist market. Wonks Company will be a price-maker, since it makes its own pricing and output decisions. In the end, the price of a product will be determined by its cost function, demand, its objectives and certain government regulations. The main objective, which leads Wonks to merge as one firm, is to maximize profit. i.e. T.C.< TR. The first thing Wonks company needs to consider is the revenue to earn when it operates as a monopoly firm. The marginal revenue, which is change in total revenue that occurs as a firm, changes its output. Total revenue will be realized after taking (Price * Quantity). Marginal revenue (M.R) = Change in total revenue/ Change in output. It is expected that in long run, Wonks chips company will increase its output since there are no other players in the market. If it does so, it has to lowers the price. As a result, marginal revenue will be below its price. In order to maximize its profits, Wonks company will produce the output at a level where marginal cost equals marginal revenue. I.e. MC=MR. In the long run, Wonks company will tend to maximize total profit and not the profit per unit hence the required rate of return will be high. Perloff, Jeffrey M. (2004). If marginal revenue is greater than marginal cost, i.e. M.R>MC, the firm will increase profit by increasing output. If marginal revenue is less than marginal cost (M.R Read More