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Economics for business - Essay Example

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The imposition of a one unit sales tax on the output of a monopolist will result in increasing the overall prices of the product as the monopolist will directly increase the price in order to overcome the increase in the cost due to the imposition of the one unit sales. This can…
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Economics for business
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Economics for business

Download file to see previous pages... In order to find the marginal cost we will calculate the first derivative of total cost function:
Monopoly is a market structure where there is a single producer or seller of the product in the market with no substitutes available. This means that the ultimate power lies with the producer or seller and not with the consumer. In other market structures, the authority to choose a product is in the hands of the consumer but in a monopolistic market there are no substitutes available and the consumer has to accept what is being offered to them.
Monopoly is considered inefficient due to the fact that the market doesn’t have any substitute of the product giving the producer or seller an authority to set prices according to their need. They usually discriminate regarding the prices and charge higher than the marginal cost of production in the market. Such market doesn’t focus on the consumers as they are aware that no matter what ultimately the consumers will choose their product even if the quality of the product is below the standards. In such market structure, the barriers to entry are high giving no or little entry positions to other businesses. As a result of the barriers there is no competition or rivalry in such market.
This market is considered inefficient than the other market structures because this market produces less output as compared to others. With no competition, reduction in the output level leads to high prices. It also creates inequality because it converts the consumer surplus into producer surplus. This inequality between the price charged and the marginal cost makes this market inefficient. This means that there is price discrimination in such market and some consumers have to pay higher prices.
In monopoly the output level is less and creates unemployment of the resources. The resources are not properly and efficiently utilized as compared to other market structures. In such market the price is greater than the marginal ...Download file to see next pagesRead More
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