Monopolies that make super normal profits aren't in the public interest because they could charge a lower price than they do.

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Title:         Monopolies that make super normal profits aren’t in the public interest because they could charge a lower price than they do.

Introduction: Monopoly is an emotive word, and the immediate reaction is that it should be replaced with competition. In this investigation we are going to look at what is a monopoly, what are barriers to entry and what types of barriers there are, what are normal and supernormal profits and to they bear any benefits to the public.    


What is a monopoly?

Monopoly is a market situation in which there is a single seller of a product and there are no close substitutes of this product in the market. The firm has all the market to its self and the customer depends on the firm for the supply of the product. The monopolists are the industry and the firms demand curve is also the market demand curve. In this case the firm has some discretion over the price it charges. The firm may increase or decrease the price with out fear of retaliation form other firms. We may consider that there is no interdependence in this market, there in one firm only. Finally it is worth mentioning that the firm may change its demand curve by for example, advertising.

(Introductory Economics, a first approach to the study of economics by Mike Cunningham 1994)               

Why do monopolies exist? There are several reasons. The source of Polaroid’s monopoly power is its penitent on instant camera technology. No firm can copy Polaroid’s process of making instant pictures. Penitent laws are one kind of barriers to entry that prevent other firms form entering the industry.

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Barriers to entry  

A barrier to entry is a condition that precludes firms from entering and industry to compete for profits. Barriers exist when new firms find it difficult to enter the market. If such barriers exist the elasticity of supply will be less that if no such barriers existed. Barriers that prevent such firms form entering a monopoly industry include economies of scale, government licensing, penitents, and exclusive control over an important resource.

Economies of scale

Suppose that five firms currently that share a market and that each sells 100 units of output at a ...

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