Happy new years everyone! Like last year when I posted the top 10 posts of 2011, its time to reveal the most viewed posts of 2012.
10. Once again its Trade Unions, posted on 16 November 2011
9. Word of the Day: Economic Growth posted on 3 August 2011
8. New entry Production Possibility Frontier and Long Run Aggregate Supply posted on 5 August 2011
7. Oligopoly, up from last year posted on 21 April 2012
6. Negative Externalities posted on 16 September 2011
5. Monopoly posted on 23 August 2011
4. Another new entry! Unemployment notes posted on 22 January 2012
3. Non mover Word of the Day: Elasticity posted on 13 August 2011
2. Another non mover Perfect Competition Long Run Equilibrium posted on 11 August 2011
1. A further non mover! The most viewed entry in 2012 was Perfect Competition Short Run Equilibrium posted on 10 August 2011
Seems market structures are popular topics that a lot of you are struggling with, but I'm glad that my posts are being viewed to help you out.
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Showing posts with label Monopoly. Show all posts
Showing posts with label Monopoly. Show all posts
Wednesday, 9 January 2013
Saturday, 18 February 2012
Profit Maximisation Point
The profit maximisation point is MR=MC. Below are the diagrams for the profit maximisation point for both monopoly and perfect competition markets. The profit maximisation point is the quantity and price level that the firm will produce at to ensure the most benefit. Before point X, MR is greater that MC thus profits will rise and rise. After point X, MC is greater than MR, thus firms do not see it profitable to produce after that point because they lose money.
For a monopolist, firms charge a price level higher than profit maximisation because it maximises producer surplus and consumers are still willing to purchase at that price level (See notes here). The quantity produced remains at Q1. For a firm in perfect competition, the level of output produced is at X and the price charged to consumers is P1, making the firm productively and allocatively efficient. For more notes, see here.
For more notes on perfect competition and monopoly markets, see here and here, respectively.
For a monopolist, firms charge a price level higher than profit maximisation because it maximises producer surplus and consumers are still willing to purchase at that price level (See notes here). The quantity produced remains at Q1. For a firm in perfect competition, the level of output produced is at X and the price charged to consumers is P1, making the firm productively and allocatively efficient. For more notes, see here.
For more notes on perfect competition and monopoly markets, see here and here, respectively.
Sunday, 28 August 2011
Word of the Day
OFT
The Office for Fair Trading uses market structure, conduct and performance indicators to scan the UK economy for evidence of monopoly abuse. This is used to analyse and evaluate costs/benefits of monopoly. The OFT, along with the Competition Commission, creates incentives for firms to resist temptation to exploit possible monopoly power. Firms will not want to risk getting caught by these regulatory bodies therefore uses these incentives.
The Office for Fair Trading uses market structure, conduct and performance indicators to scan the UK economy for evidence of monopoly abuse. This is used to analyse and evaluate costs/benefits of monopoly. The OFT, along with the Competition Commission, creates incentives for firms to resist temptation to exploit possible monopoly power. Firms will not want to risk getting caught by these regulatory bodies therefore uses these incentives.
Friday, 26 August 2011
Word of the Day
Monopsony
A type of market structure where there is only ONE buyer and many sellers. An example of pure monopsony is a firm that is the only buyer of labour in an isolated town. Such a firm is able to pay lower wages than it would under competition. Although cases of pure monopsony are rare, monopsonistic elements are found wherever there are many sellers and few buyers. Monopsonies, like monopolies and oligopolies, are a form of imperfect competition.
A type of market structure where there is only ONE buyer and many sellers. An example of pure monopsony is a firm that is the only buyer of labour in an isolated town. Such a firm is able to pay lower wages than it would under competition. Although cases of pure monopsony are rare, monopsonistic elements are found wherever there are many sellers and few buyers. Monopsonies, like monopolies and oligopolies, are a form of imperfect competition.
Tuesday, 23 August 2011
Monopoly
· A few firms dominating the market. Actual monopolies (only one firm in the market) are very rare.
Monopoly Equilibrium
Therefore the total revenue gained by the firm is rectangular area P3XQ1O. The total costs the firm incurs is the rectangular area P2YQ1O. The supernormal profits that the monopoly firm makes is P3XQ1O - P2YQ1O (total revenue minus total costs), which equals P3XYP2. This profit is the monopoly profit that the firm makes.
The monopoly IS the industry and therefore there is no separate market demand and supply diagram (like with perfect competition, see here and here). They get combined and put together because the market is the monopoly. AR is downward sloping because if they set a large price, following the law of demand, the number of units they will sell will fall and vice versa.
This diagram is the long run equilibrium and the short run equilibrium. Barriers of entry prevent new firms entering the market, thus monopoly profits are sustained in the long run as well. Firms want to be monopolies because monopoly firms sustain supernormal profits in the long run.
Efficiency
For a monopolistic market, the firm is…
· NOT allocatively efficient. The firm does not produce above quantity Q1. Price does NOT equal MC.
· Not productively efficient because it is not producing at its cost minimising point (the lowest point on the AC curve).
Benefits of a monopoly:
· Market can benefit from economies of scale due to lower ACs.
· Supernormal profits can be used for R&D.
This model, like perfect competition, can be used to compare real life markets with.
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