What are the characteristics or assumptions of the monopoly model? For each of the following markets...

What are the characteristics or assumptions of the monopoly model?

For each of the following markets explain the sources of monopoly power/barriers to entry: electric company, diamonds, new life-saving drug.

In what part of the demand curve will a monopolist operate? Why?

Expert Solution

1) Charateristice of monopoly model:

Barriers to entry: It is not easy or impossible for other suppliers to enter in the market.
Price maker: Monopolist are the price maker of a product as they can decide the price at which they wants to sell the product.
Profit Maximizer: They can charge a little more than perfectly competitive market as they are the single supplier of the product which makes their profit level high.
Price discrimination: Thye can charge a different price frm different segments of the customers and discriminate among them to maximize the level fo profit.
Sole Supplier: Thye are the sole supplier of the proudct as due to high barriers to entry there are no other producers in the market.

2) Electric company: There is less monopoly power in this industry. Majpr barriers to enter are customer switching cost as customers tends to change their company to buy electrical parts.

Diamonds: They are the natural resources of a country and government owns the right to extract that. Thus, government owns the monopoly over it and there are high barriers to entry.

New life saving drug: It is very difficult to find life saving drug, if any firm is able to fnd it, they will hold a monopoly over it. There would be many barriers to entry in this industry such as technical advancemnet to innovate that product.

3) Marginal revenue is positive or negative in case of monopoly. When marginal revenue is positive, demand is elastic or when marginal revenue is negative, demand is inelastic. Thus monopoly operate when marginal revenue is positive and demand is elastic.

Rahul Sunny answered 4 months ago

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What are the characteristics or assumptions of the monopoly model? For each of the following markets...

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