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Parking Economics - Essay Example

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Monopoly markets arise by ensuring that there is one supplier, protected from competition by barriers restricting entry of new firms into that market. These…
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Parking Economics
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Parking Economics

Download file to see previous pages... Legal barriers restrict competition through methods such as patents or copyrights, public franchise and government licenses (Duffy 119).
Price discrimination and a single price markets are the two main price strategies utilized in monopolies. For most monopolies, low prices facilitate larger output; therefore, single price strategy is efficient in determining output and price. Single price monopoly involves selling its entire output unit at similar prices to all customers. This strategy builds on the flux in demand for goods. In an elastic environment, single price monopoly works best by increasing the production of a unit and reducing the selling price thereby, increasing marginal revenue that translates to profits. However, in a rigid demand market setting, fall of price in the output translates to decrease in total revenue. In such markets, monopolies reduce the number of units produced and increase the price of each unit. This will decrease the total cost but increase the income profits (Duffy 120).
In a perfect competition market, equilibrium occurs when the demand is equal to supply in regard to unit quantity and price. On the other hand, equilibrium in a single price monopoly markets occurs when the marginal revenue and the marginal cost are equal. Monopoly equilibrium relies on a higher price smaller output strategy. Perfect market competition is more efficient than a monopoly market because the marginal social benefits and the marginal social costs are equal. This equilibrium describes the maximization of consumer surplus and producer surplus hence production of efficient output. Firms that run a monopoly are not able to get maximum outputs from the available inputs. In summary, marginal social benefit exceeds marginal social cost leading to dead weight loss. However, this discrepancy can be averted through rent seeking which is the process of redirecting the surplus from a ...Download file to see next pagesRead More
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