Monopoly and Fair Return

Chapter 10 (Tentative Due Date by November 1) doubtfulness 2 Discuss the major barriers to doorway into an attention. apologize how each barrier finish foster either monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifi equal to(p)? LO1 The major barriers to entry in an industry be economies of scale, legal barriers such(prenominal) as patents & licenses and otherwise strategic or pricing barriers. Economies of scale give only in large firms who argon able-bodied to reach a marginal efficiency scale point and bleed at that point for a commodious period.This eminent TC go outs in a low ATC and high efficiency. Once a huge firm innovates, it protects that truly composition or product through patents disallowing other firms to copy their product. Government licensing could also result in limited entry of firms be earn they faculty not provide permission for other firm to enter the market. Another agency to reduce competition within an industry is to manipulate hard-boiled. Monopolists, being a charge setter, could slash their determine just to process it tougher for their competitor to survive.Other strategic manners could include increase advertisement to a level where the lesser and smaller firms will find unacceptable to compete against. These barriers of entry can bear to be pertinent for the existence of a slight monopoly. The absence of nearly of these barriers would conk out away to a market complex body part resembling an oligopoly or perhaps however a monopolistic free-enterprise(a) industry if the physical body of firms was to be large. And in the case where there are no barriers a stringently competitive market would appear.But definitely some barriers are within legal rights. For recitation a patent protects the product for a number of years and its perceivable that a monopoly would want to restrict the utilisation of their research and hard work. Similarly if the outlay slashes are pushing out competition, they are at the same team back up competitors to reduce their costs/price which is corking for the consumers and the market in general. Question 3 How does the aim curve confront by a purely monopolistic trafficker differ from that confronting a purely competitive firm?Why does it differ? The make curve of a purely competitive firm is horizontal because it has perfect substitutes and a very large number of firms. The train curve is perfectly elastic and indeed horizontal. On the other a pure monopolys ask curve is down(prenominal) 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 Explain verbally and graphically how price (rate) statute may improve the performance of monopolies. In your answer distinguish between (a) socially optimal (marginal? cost) pricing and (b) fair? stop (average? total? cost) pricing. What is the dilemma of regulation? LO5 view of a firm operating at a point where ATC is still falling. separately small firm would produce a much smaller proceeds at a higher ATC. So expeditious and lowest-cost production requires a single seller. This is be in the graph attached and named represent 1. The monopoly could charge any price they choose.One extract is to charge the socially optimal price where price equals marginal cost. This is the allocatively efficient outturn level where all marginal benefits elapse 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 principle dough. The dilemma of regulation is caused by these very regulation methods. These regulatory measures which are set to ach ieve the most efficient allocation of resources in P=MC in truth result in the monopoly making a loss.Similarly the problem with the fair return price is that it doesnt completely solve the going of under-allocation. Question 11, LAST WORD How was De Beers able to reign the world price of diamonds even though it produced only 45 part of the diamonds? What factors ended its monopoly? What is its new strategy for earning scotch gain, rather than just normal profit? Despite producing 45% of the diamonds, De Beers was able to control the world price due to the cogency to control its own production levels and high market share.The fact that so some diamond suppliers were coming through and providing alternatives such as synthetic diamonds hale De Beers to fit out in advertising and promoting their own diamonds. These were factors entirely out of De Beers control. More diamond reserves were being discovered and caused competition. So De Beers was forced to stop its operation as a monopoly and instead as the diamond supplier of choice. Problem 1 reckon a pure monopolist is faced with the demand schedule shown below. Calculate the lacking(p) total? tax revenue 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 equivalence it to the bestow Revenue -Total Cost approach. LO2 Total Revenue from top to bottom, in dollars 0, 100, 166, 213, 252, 275, 288, 294, 296, 297, 290 borderline 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)=>252-210=$42