Question

It has been said that no firm is totally sheltered from its rivals. All firms compete for consumer dollars. If this is the case, then it can be said that pure monopoly really does not exist.

• Do you agree? Explain.
• How might you use the concept of “cross elasticity of demand”, to judge whether monopolies exist?

Answer 1

Que. 1

While it’s true that “all companies compete for consumer dollars,” it’s just playing on words Keep in mind that pure monopoly does not exist. If you want to send a first class letter, it is a post Service or nothing. Of course, if the postal service charges you $ 15 to get a letter across the city In two days, you will use a courier or phone or you will fax it. But within reasonable limits Say twice the postal rate, there is no alternative to any such postal service Comparable price.

The same can be said of pure monopolies using local electricity Company in any village. If you want electric lights, you have to deal with the same company. This is it Although you can switch to oil or natural gas for heating, pure monopoly in that regard. Of Of course, you can also use natural gas or kerosene for lighting too but these are very convenient Options.

Que.2

The concept of cross-elasticity of demand can be used to measure the presence of nearby options For the production of a monopoly company. If the cross flexibility of demand is more than one Monopoly faces are flexible and firm in terms of alternative products Cross flexibility of demand has less control over the price of its product than is not neutral. In others Words, monopolies take competition from manufacturers of alternative products.