The Existence of a Monopoly and Public Interest Essay -- Monopolies Ec

The Existence of a Monopoly and Public InterestA monopoly is defined as the fix supplier of a good or service withno close substitutes in a given price range. A pure monopoly bequeath then have a 100% market shargon i.e. the faithful is the industry. Theyexist and can only remain as monopolies if there are high barriers to doorway to the industry. In the case of a natural monopoly, economies ofscale are so large that any new entrant would find it impossible tomatch the cost and prices of the established firm in the industry.Other barriers to gate take on legal barriers such as patents,natural cost advantages such as ownership of totally key sites in theindustry, marketing barriers such as advertising, and limitingpractises designed to force any competition to leave the market. Inthis market structure it is also assumed profits are maximised andthere is consumer rationality.Traditionally monopoly is public opinion to be a potentially harmful marketstructure with unwelcome co nsequences for the consumer and theeconomy. Competition has continuously therefore been seen to be desirable.It could be said therefore to be against the public interest. Howeverthere are arguments not only against monopolies but also for theirexistence. whiz of the main arguments against monopolies is that they raiseprices, restrict output and therefore rap consumers. This isbecause the neo-classical theory of the firm assumes that a monopolist leave behind maximise profits which means it will produce where MC=MR. Theequilibrium profit maximising train of output will therefore be whereMC-MR. This is shown belowThe diagram above shows the firm will produce the quantity Qe and willcharge the price Pe. As the monopolist above is... ...s to largefirms in the economy. Should it split them up or promote such firms.Competition form _or_ system of government therefore reflects the attitude towards monopoly.At the fleck the UK has a pragmatic approach where monopoly can begood or bad. I t uses the monopolies and mergers commission to use acase-by-case approach. Competition policy is a government policy toinfluence the degree of competition in individual markets deep down theeconomy. Governments can also attempt to correct market chastening causedby monopolies by taxing supernormal profit away, set maximum pricelevels, subsidize production, nationalise the industry, break it up orreduce entry barriers.In the past economists have generally come out against monopolies andin favour of war-ridden markets. However, this is clearly notconclusive as monopolies have legion(predicate) potential advantages anddisadvantages. The Existence of a Monopoly and Public Interest Essay -- Monopolies EcThe Existence of a Monopoly and Public InterestA monopoly is defined as the sole supplier of a good or service withno close substitutes in a given price range. A pure monopoly willtherefore have a 100% market share i.e. the firm is the industry. Theyexist and can only remain as monopolies if there are high barriers toentry to the industry. In the case of a natural monopoly, economies ofscale are so large that any new entrant would find it impossible tomatch the costs and prices of the established firm in the industry.Other barriers to entry include legal barriers such as patents,natural cost advantages such as ownership of all key sites in theindustry, marketing barriers such as advertising, and restrictivepractises designed to force any competition to leave the market. Inthis market structure it is also assumed profits are maximised andthere is consumer rationality.Traditionally monopoly is thought to be a potentially harmful marketstructure with unwelcome consequences for the consumer and theeconomy. Competition has always therefore been seen to be desirable.It could be said therefore to be against the public interest. Howeverthere are arguments not only against monopolies but also for theirexistence.One of the main arguments against monop olies is that they raiseprices, restrict output and therefore exploit consumers. This isbecause the neo-classical theory of the firm assumes that a monopolistwill maximise profits which means it will produce where MC=MR. Theequilibrium profit maximising level of output will therefore be whereMC-MR. This is shown belowThe diagram above shows the firm will produce the quantity Qe and willcharge the price Pe. As the monopolist above is... ...s to largefirms in the economy. Should it split them up or promote such firms.Competition policy therefore reflects the attitude towards monopoly.At the moment the UK has a pragmatic approach where monopoly can begood or bad. I t uses the monopolies and mergers commission to use acase-by-case approach. Competition policy is a government policy toinfluence the degree of competition in individual markets within theeconomy. Governments can also attempt to correct market failure causedby monopolies by taxing supernormal profit away, set maximum pricel evels, subsidise production, nationalise the industry, break it up orreduce entry barriers.In the past economists have generally come out against monopolies andin favour of competitive markets. However, this is clearly notconclusive as monopolies have many potential advantages anddisadvantages.