Task 1

Monopoly

- Exist where there is only one firm or supplier in an industry

- Characterized by a lack of economic competition to produce
the good or service
- Possibility of a high monopoly price well above the
firm's marginal cost that leads to a high monopoly profit
- Process by which a company gains the ability to raise prices or
exclude competitors

Characteristics of a monopoly

1. Profit Maximizer - Maximizes profits.

2. Price Market - Decides the price of the good or product to be

sold, but does so by determining the quantity in order to demand
the price desired by the firm.

3. High Barriers to Entry - Other sellers are unable to enter the

market of the monopoly.

i. Legal Barriers :
- Legal rights can provide opportunity to monopolise the market
of a good. Intellectual property rights, including patents and
copyrights, give a monopolist exclusive control of the production
and selling of certain goods.
- Property rights may give a company exclusive control of the
materials necessary to produce a good.

ii. Resources Barriers :

- Able to buy or otherwise acquire the key resources needed to
produce a good.

4. Single Seller
- In a monopoly, there is one seller of the good that produces all
the output.
-Therefore, the whole market is being served by a single company,
and for practical purposes, the company is the same as the
industry.

5. Price Discrimination
- A monopolist can change the price and quality of the product.
- He or she sells higher quantities, charging a lower price for the
product, in a very elastic market and sells lower quantities,
charging a higher price, in a less elastic market.

6. Unfair Competition
- Once created, a monopolist may defend itself through unfair
competition practices.
Task 2

Monopoly is inefficient.
Allocative Inefficiency :
- Prices will tend to be higher, and output lower, than what
would exist in a market with low barriers to entry.
- Prices will tend to be higher than both marginal costs and
average total cost.

Weakened Market Forces :

- when consumers of a product have many alternatives, producers
must serve their customers efficiently in order to stay in business.
If consumers can't purchase competitive products easily, the
monopolist doesn't need to worry a lot about losing customers
when poor service or a poor quality good is provided.

Rent or Favor Seeking :

- involves seeking to increase one's share of existing wealth
without creating new wealth.
- Rent-seeking results in reduced economic efficiency through
poor allocation of resources, reduced actual wealth creation, lost
government revenue, increased income inequality, and
(potentially) national decline.

High Price :
- Has total control over the price and the production of such
commodity

Excess Capacity :
- Ideal output is the output at which long-run average cost is
minimum
- MN output represents the excess capacitywhich emerges
under monopolistic competition
- Worth nothing that the concept of excess capacity refers only to
the long run.

Productive Inefficiency :
- Productive inefficiency occurs when a firm is not producing at its
lowest unit cost
- Unit cost is the average cost of production, which is found by
dividing total costs of production by the number of units
produced.

Stifle Competition :
- Monopoly and perfect competition mark the extremes of market
structures there is some similarity.
- Both monopolies and perfectly competitive (PC) companies
minimize cost and maximize profit. The shutdown decisions are
the same.
- Both are assumed to have perfectly competitive factors markets.
Task 4

Market Failures :
- According to general equilibrium economics, a monopoly can
identify or create a rigid demand curve, restrict supply and cause
deadweight loss to the economy.
- The underprovision of a market good or service is known as
a market failure.
Public Goods :
- both non-excludable and non-rivalrous in that individuals
cannot be effectively excluded from use and where use by one
individual does not reduce availability to others.
- include fresh air, knowledge, official statistics, national
security, common language(s), flood control systems, lighthouses,
and street lighting
- Public goods that are available everywhere are sometimes
referred to as global public goods

i. Non-excludable : - possible to prevent people (consumers) who

have not paid for it from having access to it.

ii. Non-rivalous : - said to be rivalrous or rival if its consumption by

one consumer prevents simultaneous consumption by other
consumers

Free Market Problems :

- market-like behavior of individual gain-seeking does not
produce efficient results
- The production of public goods results in
positive externalities which are not remunerated