A discussion of profit maximization of the monopolistic firm and the benefits and disadvantages of a monopoly to a consumer.
Written in 2002; 855 words; 3 sources; MLA; $ 30.95
Paper Summary:
This paper examines the concept of monopoly and how the central theory in all of the profit-maximizing outcomes rests on the idea that marginal revenue should equal marginal cost. It looks at how a firm has a monopoly if it is the only supplier in the industry of that particular product or products. Moreover there are no close substitutes. Therefore the consumers in this market have no choice but to buy from that one firm or not at all. For this reason, the monopolist is known as a price-maker because it has the opportunity to set prices at any desired level. It analyzes how affects revenues and costs and what the main advantages and disadvantages are.
From the Paper:
"Monopolies occur largely because of the existence of barriers to entry in a given industry. These barriers include legal barriers (patents and licenses), economic barriers and natural barriers. Under legal restrictions, government allows anyone firm a special right to manufacture or trade that particular product. This happens usually when a firm acquires a patent or a special right to market that particular product. Also sometimes the government would grant any one organization to dominate an industry such as a telecom firm that happens to be the only firm providing telecommunications services. Other barriers include control of a scarce resource or input as in the case of the South African diamond syndicate. Technical superiority as in the case of Microsoft is another barrier for other firms to make and market a similar product. Natural barrier or monopoly exists where an industry in which advantages of large-scale production make it possible for a single firm to produce the entire output of the market at lower average cost than a number of firms each producing a smaller quantity."
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