Question

Answer the following completely:

a). Relative to managers in more monopolistic industries, are managers in more competitive industries more likely to spend their time on reducing costs or on pricing strategies?

b). Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium?

c). Describe an important difference(s) in the way an economist and a businessperson might view a monopoly.

Answer 1

Answer:-

(A) Monopolistic industries' firms are more likely to spend more time on the cost and pricing strategies. The firms in monopolistic competition sells differentiated products and the sales depend on the pricing strategies of the firms. That is more quantity can only be sold by reducing the price of the product. On the other hand, in the perfectly competitive market the firm is price taker and sells homogeneous products which are perfect substitutes of each other. The costs and prices are almost the same in whole industry.

(B) In the short run, a monopolist will earn a higher economic profit in comparison to competitive firm has. In the long run, both - competitive firm as well as a monopolist are expected to have zero economic profit. The monopolist may take longer to reach the long run because in the long run, all the factors of production are variable including the plant size and a monopolist will maximize profit at the level of output where marginal cost (MC) is equal to marginal revenue (MR) and the LMC curve intersects the MR curve from below.

(C) Basic difference between view of economist and a businessman towards monopoly is- An economist thinks about welfare of the society. Monopoly does not give maximum welfare to the society. Perfect competition gives maximum welfare to consumer and producer as well as to the society. Economics is not the subject of profit only. so that economist did not like this market structure. It exploits the consumer, labor, natural resources etc.

In the view of a businessman, monopoly is the best market situation for him. Because it gives him maximum profit. All producers have single motive of profit maximization. They earn maximum revenue and maximum profit in this market. A businessman wants to be a monopolist and controls price/demand in the market.