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The Aspects of Monopoly - Term Paper Example

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This work "The aspects of Monopoly" describes the monopoly and emergence of monopolistic firms. The author takes into account the contemporary trends of monopoly and competition. It is clear that competition should be encouraged especially now that the use of information and communication technologies has shaped the way business transactions are handled…
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The Aspects of Monopoly
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Download file to see previous pages On the other hand, pure competition is characterized by a large number of small competitors. The small competitors normally have no market control thus it only acts as an ideal market structure that sets standards for good results in the future.
A firm that is under pure competition may sell as much as it wishes with the current market price as long as it can produce at its original cost. However, the firm may achieve monopoly status due to economies of scale, government decree and resource ownership (Tucker 228).
The emergence of a monopolistic firm is normally influenced by economies of scale and decreased average cost. When a firm finds itself in a monopoly position, its average cost has to reduce overtime thus selling goods at a lower price per unit cost. The strategy ensures that the sales volume is high, and the goods are produced in a more efficient way. Normally, a market may start as pure competition with many sellers but ends up in a monopoly with one seller who can take advantage of the reduced average cost.
A government decree may as well make a firm attain a monopoly status. For instance, the government may allocate only one firm that supplies a particular good. Since the good may be new and unique in the market, not many people may buy the good thus forcing the seller to reduce the prices in order to increase the sales volume. Thus, the consumers benefit (Mankiw 330).
A monopoly may also arise when the resources used in producing a certain good is owned by the firm. Since the firm may have the powers of controlling the input, it may as well have the powers of controlling the output. Therefore, such a firm may control its costs at will. Thus, the firm will be able to reduce its cost as well as the prices in order to increase its demand for goods.
In essence, the demand curve therein is for the product. The red curve marked D is the demand curve facing a monopoly while the green curve marked MR if the marginal revenue curve. Since a monopoly is the price maker, it has to lower its prices so that the sales volume may be higher and that is the reason for the negative slope of the demand curve. From the figure above, it is evident that the firm sells 1 unit at $10. However, when it wants to sell 4units, then the price must be lowered to $7. ...Download file to see next pages Read More
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