Question

Consider a monopoly of your choice that exists in the United States. Examine its economic
characteristics and state how it differs from an oligopolist or a monopolistically competitive firm.
(explain how it can be an oligopolist, but usually has the price making power of a monopolist).
Also, determine if it differentiates on the basis of price and reduces economic efficiency. You
may state examples if you want to.
Your summary is like an essay, so try to write using technically correct English to earn points.

Answer 1

Ans. A monopoly produces the level of output at which the marginal revenue is equal to the marginal cost but because monopoly faces a downward sloping demand curve, so, price is not equal to the marginal cost. Thus, a monopoly earns a supernormal economic profit. Therefore, it produces an economically inefficient level of output as people who value the good at atleat its marginal cost are not able to buy the good creating a deadweight loss in the market.

Monopoly uses price discrimination like charging different prices for the same good based on the age of the consumer. This helps the monopoly earn higher amount of surplus and also, helps in reducing deadweight loss leading to a more efficient outcome.

Monopoly is different from oligopoly and monopolistic competition in the sense that it faces a relatively less elastic demand curve than the other two which means that he price of the good will be highest in monopoly and quantity of the good will be lowest creating the most inefficient level of output in the market.

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