Question

• dentify the characteristics of a monopoly and the importance of barriers to entry
• Determine the profit-maximizing level of output and profit for a monopoly
• Compare the economic outcomes or perfect competition versus a monopoly
• Explain the government policy option for natural monopolies
• Describe the key antitrust legislation in the United States

words only no equations

Answer 1

Monopoly is a kind of market structure whete there is only one seller of a product and is called a price maker. The characteristics of monopoly are:

1. Price Maker

2. Single seller

3. Barrier to entry: importance- No firm can enter to monopoly market structure due to certain legal restrictiona like patent rights etc. This must be there in order to prevent firms from entering on the market and expoliting it.

4. Large number of consumers

B) The profit maximising level of output of monopolist will depend on its marginal cost and marginal revenue. Monopolist will provide that level where his Marginal cost equals marginal revenue. When marginal revenue is more than marginal cost it means that firms are having profits.

C) In monopoly, the firm is the price maker. Sometimes the firm can charge higher prices and exploit the consumers and at the same time it can also deny to sell to consumers. But in perfect competition, the firms are price takers and there are large number of firms so they have to sell to the consumers at the proces fixed by the forces of demand and supply that is, the price prevailing in the market.

D) Natural mobopoly is a monopoly in which Average Cost falls and firm is able to supply product and satisfy consumers. For example: providing electricity by three to four firms. One firm is able to provide at lower price and satisfy all consumers. So natural monopoly arises. So government uses this policy to provide electricity.

E) Key antitrust legislation is a set of laws that were passed in order to prevent monopoly firms from combining together in order to prevent competition amongst them. So law abstains from doing that and insures that enterprises are free.