Question

1) Monopolies may create a transfer of wealth from consumers to producers. So what? society does not become poorer because of that. Then, what is the problem with a monopoly from an economic point of view? Would you say that every monopoly is not competitive? why yes or why not? Provide examples. What would be the best indicator of a competitive industry? What are the main sources of market power?

2)Explain, why do we say that COVID created a large externality problem? What possible solutions do we have to solve externalities? From all the options available to solve externality-like problems which one did we use and how? Do you observe positive externalities with COVID? Explain. Also, do you think a vaccine is a public good? If so, why? or maybe you think it is not a public good, then again, why?

3)Given a Demand Curve as: P = 100 -2Q. Fixed Cost = 100 and Marginal Cost = 20. Find the total profit of a monopolist under those conditions. Explain with as much detail as possible how you found your answer.

Answer 1

1) From economic point of view, monopoly is a problem because it reduces the welfare of the consumers. Since monopoly doesn't have a competition, it charges very high prices for its products. So the consumers' welfare is reduced and their demand also decreases. The choice of consumers by a monopoly is also less. So this is how monopoly reduces the welfare of the economy.

Every monopoly is not competitive. In the case of monopoly, there is no competition by any other firm. The supply of the whole market is supplied by a single firm. Also there is no close substitutes of the product in the market provided by the monopoly. Example of monopoly is Andrew Carnegie's steel company which is now known as the U.S. steel.

The best indicator of competitive industry is huge number of sellers of the product in the industry. If there are huge number of sellers in a particular industry, then that industry is competitive.

Main sources of market power are economies of scale operating, technological advantages in the production, restricted ownership of the inputs needed for production, restrictions imposed by government like licensing or certification requirements.