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What is a Monopoly?

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MONOPOLY A. Define a monopoly - Explain how they can develop B. What are the sources of monopoly power? Evaluate using examples C. Diagrammatical analysis of the monopoly diagram D. Are monopolies a bad thing? Cost Benefit Analysis E. Monopoly case study Define a monopoly - Explain how they can develop. What are the sources of monopoly power? Evaluate using examples The word monopoly comes from the Greek words monos, ones and polein, to sell. When a market is analysed by economists it can be placed on the scale below. Most markets will be in the middle of the two extremes; in this essay I shall be ananlysing the monopoly extreme. In economics, a monopoly is defined as a market situation where there is only one provider of a product or service. Monopolies are characterised by a lack of economic competition for the good or service that they provide as well as high barriers to entry for potential competitors in the market. When a firm has 100% percent market share, only then can it be classified as a monopoly because no one else can compete against them. Despite this, a firm does not always need a 100% market share to be a monopoly, if the firm is extremely large compared to other firms in the market then other will not be able to compete at the same level, reasons for this could be that larger firms will have cheaper prices because they will enjoy economies of scale, so they will always be making a profit while other firms will suffer as they try to establish themselves. ...read more.


and one where demand is sensitive to price changes (i.e. Ped >1). The first is associated with a monopoly where consumers have few close substitutes to choose from. When demand is inelastic, the level of consumer surplus is high, raising the possibility that the monopolist can reduce output and raise price above cost thereby operating with a higher profit margin (the difference between price and average cost). One way of showing the loss of economic welfare that comes from monopolistic firms exploiting their power is to use supply and demand analysis and the concepts of consumer and producer surplus. If a monopoly reduces output from the equilibrium at Q1 to Q2 then it can sell this at a higher price P2. This results in a transfer of consumer surplus into extra producer surplus. But because price is now about the cost of supplying extra units, there is a loss of allocative efficiency. This is shown in the diagram by the shaded area, which is not transferred to the producer, merely lost completely because output is lower than it would otherwise be in a competitive market. Higher costs - loss of productive efficiency: Another possible cost of monopoly power is that businesses may allow the lack of real competition to affect them leading to a rise in production costs and a loss of productive efficiency. When competition is very tough, businesses must seek to keep firm control of their costs and keep productivity high because otherwise, they risk losing market share. ...read more.


There are plenty of people who want to know more and see the limitations that Windows has and are looking to develop new software and it could be argued, better products. Linux is one such example. Linux is an operating system that rivals Windows, originally produced by Linus Torvalds, a Swedish speaking Finn now living in the United States. Its users are convinced its stability and security is better than that of Windows and the fact that it is open source available to anyone who wants to use it, and that it is developed and improved by a community of users is an important factor in its success; it has been developed in spite of the monopoly position that Microsoft exerts and this makes it attractive for those who like to support the battle against the corporate giants. Mozilla Firefox is another challenger to Microsoft. Firefox is a browser, the same as Internet Explorer but better according to those who use it regularly. It has, reputedly, seen 50 million downloads in the last nine months alone. A firm gaining a monopoly, certainly in the private sector, is not therefore in a position where it can beat off all challengers and can sit back secure in the knowledge that it will remain powerful for evermore. It constantly needs to monitor its performance, the needs of its customers and seek new innovative and more effective products to be able to combat the challenges that will come from pretenders to the throne. ?? ?? ?? ?? Anand Thanky ...read more.

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