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Micro - Case Study Example

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A monopoly is in existence where there are no close alternatives to a product, and the producer of the product is protected from competition by restrictions set to avert entry of other firms into the same industry. Monopolies get their control from being a single seller in the…
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Micro case
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Download file to see previous pages... Monopolies are given the rights to be the only firms in operation as a result of various barriers to entry into the industry. The major barriers are permits or licenses, ownership of key resources, copyrights and patents, high start up cost and being offered subsidies.
Monopolies may also come across barriers in going out of the market, whereby they are restricted from exit from the market if they are responsible for producing an important product. (Musgrave et al, 41). If a government concludes that products manufactured or provided by such firms are indispensable for the benefit of citizens then such monopoly could be halted from exiting because it improves the living standards of people.
Monopolies are also characterized by being in charge of technological knowhow used in production or information, which is not available to potential competitors. In addition to this, monopolistic enterprises might have some information or technology, which is not known to others. The technology or information may or may not be solely owned and it could even be a secret formula, which could be a unique way of producing the distinctive product, which will leave other firms in no position to produce the same
The key source of a monopoly are the hurdles to entry, which originate from sources such as ownership of key resources and patents, whereby the government may give individual firms the exclusive rights to produce some products. Therefore, production costs will make the only producer more proficient compared to a large group of producers, which will be forced to go out of the market (Musgrave et al, 21).
The government can regulate a monopoly so as to prevent heightened prices in a market, and this is achieved by setting the average price of products. The main drawback is that at times the regulated prices are below average the total costs incurred, which means that prices are lower than the producer’s average total costs, and in such cases, a firm ...Download file to see next pagesRead More
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