Sunday, January 13, 2019

Monopoly and Fair Return

Chapter 10 (Tentative call sufficient Date by November 1) Question 2 Discuss the major barriers to entry into an perseverance. relieve how each barrier can further either monopoly or oligopoly. Which barriers, if any, do you relish give rise to monopoly that is socially excus fit? LO1 The major barriers to entry in an industriousness argon economies of scale, legal barriers such(prenominal) as patents &amp licenses and other(a) strategical or pricing barriers. Economies of scale put across only in large firms who ar able to reach a tokenish efficiency scale point and act at that point for a extensive period.This high TC dissolvers in a low ATC and high efficiency. Once a huge firm innovates, it protects that really root or product through patents disallowing other firms to copy their product. Government licensing could also result in limited entry of firms be intellect they big power non provide permission for another(prenominal) firm to enter the market. Anoth er factor to reduce competition within an industry is to manipulate determine. Monopolists, being a footing pitter, could slash their determine just to light upon it tougher for their competitor to survive.Other strategic method actings could include change magnitude advertisement to a level where the lesser and smaller firms will find unimaginable to compete against. These barriers of entry can put forward to be pertinent for the existence of a unadulterated monopoly. The absence of near of these barriers would bakshis away to a market construction resembling an oligopoly or perhaps scour a monopolistic warlike industry if the yield of firms was to be large. And in the case where there are no barriers a purely competitive market would appear.But definitely some barriers are within legal rights. For event a patent protects the product for a number of years and its understandable that a monopoly would want to restrict the routine of their research and hard work. Similarly if the set slashes are pushing out competition, they are at the same team boost competitors to reduce their costs/ cost which is great for the consumers and the market in general. Question 3 How does the withdraw curve set about by a purely monopolistic vendor differ from that confronting a purely competitive firm?Why does it differ? The pick up curve of a purely competitive firm is horizontal because it has perfect substitutes and a very large number of firms. The fill curve is perfectly elastic and and so horizontal. On the other a pure monopolys penury curve is downward sloping because market demand is not perfectly elastic. The monopolist is the industry and its demand curve is hence the market demand curve. The difference in characteristics such as number of firms, types of product and barriers to entry cause the distinguished demand curve.Question 9 rationalize verbally and graphically how price (rate) enactment may improve the performance of monopolies. In your answer distinguish between (a) socially optimal (marginal? cost) pricing and (b) fair? overstep (average? total? cost) pricing. What is the dilemma of regulation? LO5 persuasion of a firm operating at a point where ATC is still falling. individually small firm would produce a much smaller return at a higher ATC. So good and lowest-cost production requires a single seller. This is represent in the graph attached and named interpret 1. The monopoly could charge any price they choose.One option is to charge the socially optimal price where price equals marginal cost. This is the allocatively efficient take level where all marginal benefits take place marginal cost. An alternative pricing method is the fair return theory where price is equal to ATC. Under this operation the monopoly is able to break even and continue operation. A fair return is equal to commonplace receipts. The dilemma of regulation is caused by these very regulation methods. These regulatory measure s which are set to achieve the most efficient storage allocation of resources in P=MC really result in the monopoly making a loss.Similarly the problem with the fair return price is that it doesnt completely solve the come on of under-allocation. Question 11, LAST WORD How was De Beers able to harbor the world price of diamonds even though it produced only 45 per centum of the diamonds? What factors ended its monopoly? What is its new strategy for earning frugal cyberspace, rather than just normal profit? Despite producing 45% of the diamonds, De Beers was able to control the world price due to the big businessman to control its own production levels and high market share.The fact that so umteen diamond providers were coming through and providing alternatives such as synthetic diamonds constrained De Beers to authorize in advertising and promoting their own diamonds. These were factors precisely out of De Beers control. More diamond militia were being discovered and caus ed competition. So De Beers was forced to stop its operation as a monopoly and instead as the diamond supplier of choice. Problem 1 guess a pure monopolist is faced with the demand schedule shown below. Calculate the deficient total? revenue enhancement and marginal? revenue amounts.Assuming that MC is $39, determine the profit? maximise price and profit? maximizing output for this monopolist. Assuming that the ATC is $52. 50, what is the monopolists profit? Verify your answer by compare it to the amount of money Revenue -Total Cost approach. LO2 Total Revenue from top to bottom, in dollars 0, 100, 166, 213, 252, 275, 288, 294, 296, 297, 290 bare(a) Revenue from top to bottom in dollars 100, 66, 47, 39, 23, 13, 6, 2, 1, -7 The profit maximizing price is $63 and profit-maximizing output is 4. Monopolists profit is TR-TC=252-(4*52. 50)=&gt252-210=$42

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