Question

Discuss various types of barriers that work in favor of a monopoly (legal barrier, technological barrier, ownership of a key resource, natural monopoly, scale economy).

Assume Hershey, Pennsylvania's only employer is Hershey Chocolate company which means it is a monopsony (single buyer) in the local labor market. Also assume, all workers belong to one trade union implying the monopoly (one seller) in the labor market. Discuss the equilibrium wage and number of workers hired in this scenario relative to competitive labor market equilibrium scenario.

Answer 1

Answer:-

(A) Economies of scale. Increased output will follow a decrease in average cost of production. These can be passed on to customers in the form of lower prices.

International Competitiveness. A firm may have Monopoly in the domestic country but face effective competition in international markets. E.g. British Steel. With markets increasingly internationalized, it may be necessary for a company to have a domestic monopoly in order to be competitive globalized.

Monopolies can be successful firms. A firm may become a monopoly through being effective and dynamic. A monopoly is thus a sign of success, not inefficiency. For instance – Google has gained monopoly power through being regarded as the best firm for search engines operation. Apple has a degree of monopoly power through successful inventions and innovation.

(B). While each labor market is so different the equilibrium market wage rate and the equilibrium number of workers employed in the perfectly competitive labor market are determined in the same manner by equally the market demand for labor with the market supply of labor.

labor demand refers to the number of hour of hiring that an employer is willing to do based on the various exogenous variables it is facing with, such as wage rate, cost of capital, the market-determined selling price of its output, etc