Question

The Sherman Antitrust Act was put into place to break up monopolies. In the late 1800s, John D. Rockefeller got rich monopolizing oil, J.P. Morgan did the same with the railroads, so the Sherman Antitrust (kind of like anti-monopoly) Act was created in 1890, and then the Clayton Act in 1915 came along to close up loopholes. Now give me a normative argument: if I create something new, shouldn't I get to make monster profits on it? Isn't Zuckerberg a monopolist of Facebook? Or what? Microsoft got hit with antitrust violations because they were dominating the market with Windows... was that wrong? What do you think?

1. Explain why price is always larger than marginal revenue for a monopoly and for what kind of firm is marginal revenue and price the same?

2. What kind of firms choose to maximize profit and What kind of firms maximize profit by setting MR=MC

3. Here's why we like to regulate or destroy monopolies. For a short time, I lived on a small island of Eskimos in Alaska, with an Innuit tribe, in a town called Shishmaref. They had one grocery store, where lettuce was $12/head. So I never bought any. Briefly explain what the deadweight loss was in this scenario.

Answer 1

Answer

Part A:

Monopolists are being regulated like that of Sherman Anti trust Act to protect the interest of buyers. When a monopolist exist monopolist gets all charge in his hand. He can charge any price to any consumer, he can decide his own output irrespective of thinking about any externalities arising out of it. Thus prevent such practices, it is necessary to have some regulations over monopolies.

Facebook is not running as a monopoly business. IT actually works in oligopolist business. We have many other competitors as well in this market of social networking such as Twitter and Orkut(that failed largelly), Whatsapp, HIke etc. But it is a leading player hence it is misundersttod as a monopolist.

Yes MIcrosoft was somewhat making monopoly by increasing concentration of the market through windows according to Competition Law.

Part B:

1. In a monopoly, the marginal revenue is lower than the price because the demand curve is downward sloping. When prices go down, more units of the product are bought.

2. For perfect comeptitive firm MR equals Price.

Part C:

1. All firms choose to maximize profit except perfect competitive firms in long run where they earn only normal profit.

2. MOnopolist , oligopolist and MOnopolistic firms maximize profit by setting MR=MC.

Part D : Because of high price it was not bought hence some sort of demand get cut off because of high price . THerefore dead weight loss occur.