Monopoly

Rhett Roberts
A monopoly exists when a single firm is the sole producer of a product for which there
are no close substitutes ( Bruce, Flynn, and Mcconnell 255). This is rather troublesome for
many reasons. A monopoly controls and dictates the market absolutely. This is because they're
the price setter, the single seller and there is no close substitute for their product (255). And the
most egregious act monopolies commit is their ability to block all rival competition. The barriers
for entrance include: economic, technological, and legal (255).
Let's further examine the barriers of entry any competitor would face when trying to enter
a market controlled by a monopoly.
Economic barrier of entry: New firms that enter the market will be faced with an
economic barrier which is insurmountable. Small scale producers stand no chance, this is due to
the fact monopolies have a lower per-unit cost associated with its economies of scale (256).
The lack of competition allows the monopoly to set their own price. A firm operating in a market
not controlled by a monopoly is forced to offer competitive prices. This is due to the fact that
firms set their price where market demands intersect with long-run average true cost (256).
Monopolies dont have to abide by this demand, due to little or no competition. A natural
monopolist can set his price far above average true cost, obtaining a significant economic profit
(256).
Legal barrier of entry: The legal barriers of entry are even a more difficult barrier to face
in many regards. Patents are the first legal barrier. Patents gives exclusive rights to the inventor
of the product (256). Patents last for 20 years this gives the developer a significant amount of
time to build a firm which can not be rivaled. Licensing is also a legal barrier of entry. Licenses
are scarce and valuable. Licenses are given to everything from tv and radio, to state owned
liquor stores (256). Once the allotted amount of licenses are gone, no one else can enter that
specific market without one.
Monopolies determine their output much differently than your standard firm in a
competitive market. Monopolies do not operate off a supply curve. There is no unique
relationship between price and quantity supplied for a monopolist (261). A monopoly only
operates off of marginal revenue and marginal cost to determine output (261). There is no single
price associated with any given level of output, therefore there is no supply curve (261).
A monopoly can easily manipulate price and output, therefore many people are lead to
believe monopolies charge the highest price possible. This is not true, because a monopoly seeks
total profit, not unit profit (261). A monopoly is happy to have a lower unit profit as long as
theyre selling more total products. A lower unit price entices the consumer to buy more of the
product. This is in the best interest of the monopoly because they have maximized their total
profit.
Monopolies are not impervious to changes in the market such as taste and demand (261).
Although monopolies have a distinct advantage, they can still be forced out of business. If a
monopoly can not maintain a normal profit in the long run they will cease production and
business

Reflective Statement
A monopoly for the most part affects the collective welfare negatively. The only kind of
monopoly that potentially does not hurt the collective welfare, would be a government monopoly
which provides electricity and water. Although there is a dilemma to regulation of a monopoly.
The government must step into regulate when fair price has spiraled out of control. The
government must also step in when huge competitors opt to merge and form a monopoly. The
government's policy on monopoly can positively affect my budget by-- achieving the socially
optimal price. The government can achieve the socially optimal price by setting the regulated
price, at a level the monopoly will be lead by its profit-maximizing rule, to voluntarily produce
the efficient level of output (273).
Works Cited
Mcconnell, Cambell R., Stanley R. Bruce, and Sean M. Flynn. Microeconomics. 20th ed. N.p.:
n.p., n.d. Print.