Analyzing Microeconomics and Monopoly Essay

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MONOPOLY

Microeconomics: Monopoly

The structure of the markets in which companies operate may vary. The implications of these variations are vital for an understanding of the environment or setting in which a business operates. A monopoly is a market structure where production is under the control of a single supplier. Since the monopolist is the sole source of supply in a market, the demand curve is also the industry demand curve. This implies that the monopolist faces a downward sloping demand implying that if the monopolist wants to sell more, it must reduce the price. In essence, a monopoly is signified by the lack of competition, which usually results in high prices and inferior product quality (Mankiw, 2011).

There are four distinctive causes of monopoly power. These include legal barriers, product differentiation barriers, economies of scale barriers, and transport cost and tariff barriers. Monopoly is the extreme instance in capitalism. In numerous perspectives, it can be considered that the system is not functional when there is a monopoly; it is a market condition that lacks incentive to enhance it (market) to meet the consumer's demands. A significant element in monopolies is price discrimination; monopolistic companies undertake such restrictive practices with the sole intention of increasing the total amount of profits that they generate (Marshall, 2013).

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Implications on the Article

The article outlines the great magnitude of monopoly in the American industries and the massive need for competition in the market. As is known, in a monopoly, there is minimal level of competition owing to the barriers of entry into the market. As indicated, the monopoly power of the large firms to influence and traverse through in the market elucidates as to why the rate of creation and entry of small firms into the market has been at its lowest since the 1970s period (The Economist, 2016).

This outlines one of the major barriers to entry in monopolies, which is the economies of scale barriers. In particular, these come about where existing companies are already operating on a vast scale of production and enjoying technical economies of scale. Therefore, this makes it hard for new entrants as they have to attain a substantial market share before they can gain complete advantage of potential economies of scale.

Monopolies generate obscene profits in their dealings with supplier / buyer companies and industries. A good example as pointed out in the article is the….....

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