Question

Mega Corporation and BIG Enterprises are sugar producers in Brazil. The two companies decide to merge and become one new company called Mega-Big Corporation. If they complete their merger the new firm would control more than 80% of the market share in the country, and thus would be classified as a monopoly. Suppose you are hired by the Brazilian government to debate on whether the government should step in to limit the formation of the monopoly. Discuss pros and cons of the government action, and use the concepts of "efficiency" and "equality" in your arguments. Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical manner as appropriate for the genre of writing. Use well-structured sentences, audience-appropriate language, and correct conventions of standard American English.

Answer 1

ANSWER:

A monopoly charges a higher price produces a lower quantity, and provides limited jobs in the industry due to lower production in comparision to a perfectly competitive firm. This implies that such a monopoly will be able to earn economic profits even in the long run and this reduces consumer surplus and distort the market outcome. A deadweight loss is created and that is why monopolies are bad for society.

Innovation is a practice that is inherent to a firm if it is aimed at maximizing profit. Innovation, when turns into a success, can empower one firm to surpass the others and this requires not to mimic or imitate the same innovation. This protection is then provided by patents, copyrights, trademarks. Protection is a necessary incentive to encourage more innovation but it is also an invitation for the firm to develop itself in a monopoly because of its sole right on the use of that innovation. In this manner, the drive to innovate and create new products creates monopoly power for a period of time. Monopolies are bad for societies because they reduce the overall social welfare but innovations are not. They are required to keep the firms operating

The reason why we have monopolies is because of their tendencies to conduct research and development, innovation and inventing new products which are then patented and copyrighted. This gives them monopoly power and government regulates their behaviour and prevent them from exploiting the market participants. But government, realizing their contribution in innovation, does not ban them.

A natural monopoly is a type of market where a single firm is efficient to provide all the output. This firm is typically large enough so that average total cost goes on falling as a level of output is increase but never reaches zero. Some examples of natural monopoly are electricity board and public water utilities. They provide electricity and water to the entire town, respectively.

Government often promotes natural monopoly, thereby allowing a single large firm to entire market. Government action ensure that there are no wastage of resources and no additional plants when there is a need of only one plant. The monopolies are allowed to sustain in the market by the government. In turn, the government acquires the right to fix the prices that the natural monopoly can charge. It also fixes the quantity of services it must produce.

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