BUECO5903 - Economics Assignment

Running Head: ECONOMICS ASSIGNMENT 1
Economics Assignment
Following the guidelines of the Course ID guidelines
Student’s Name
University

ECONOMICS ASSIGNMENT 2
The identified essay has been developed to discuss the characteristics of a monopoly
market. Precisely, the study provides an extended introduction elaborating monopoly market
structure. By defining the concept of monopoly business in a given market, the essay paper
thoroughly researches two major questions. First of all, the study illustrates why the government
of leading economies has wanted to control the price setting policy of a natural monopoly
business. Secondly, the ways to regulate the price setting of monopolist business have been
described in the study as well. In the meanwhile, the study paper includes economic principles to
analyse how monopolist business set up has affected the consumers in a free market.
In terms of economic definition, pure monopoly market structure has formed if there is
only a single producer or supplier available to the market (White, 2015). Therefore, due to lack
of market competition, the operating business of the single firm creates monopoly market where
the monopolist firm has become the price maker in the industry (Abdin, 2008). The study paper
delivers a detailed review of the operations of natural monopolist firm to identify why the
government should restrict the price setting of monopoly businesses (Imai, 2012). In addition, a
case study has been provided to understand how natural monopoly can imbalance the market
equilibrium price.
In order to understand why and how government regulates the price setting of a
monopoly market, it is important to observe the characteristics of a monopoly market structure.
In a monopoly market structure a single firm serves the entire industry with no competition
(Sheshinski, 2016). On the basis of the regulatory terms, a firm with 25 percent or more of the
market share is considered as a monopoly (Jamal & Sunder, 2014). On the other hand, it is
important to note that a natural monopoly occurs due to certain advantages such as high
availability of mineral resources, strategic location and specific regulatory requirements

ECONOMICS ASSIGNMENT 3
(Sheshinski & Weiss, 2013). For example, the Gulf Countries have good amount of natural crude
oil resources that makes them monopoly leader in the global oil industry. However, to become a
natural monopoly market, the industry must possess the following characteristics:
 One seller and many buyers: There is a single seller and huge number of buyers in a
monopoly market.
 Lack of substitutes: Due to the absence of competitors there is a lack of substitute
products. Sometimes the distinctiveness of the products and services provide monopoly
rights to the firms (Sheshinski & Weiss, 2013).
 Lack of competition: As there is a single seller in the market there is no close competitor
for a monopoly firm.
 Profitability as the primary objective: The primary objective of monopolist firm is to
earn higher level of profitability. In other words, profit maximisation is the main aim of
the monopolist firms. The monopolist firms aims to achieve supernormal profit that
makes different from any other market structure (Sheshinski & Weiss, 2013). However,
the firm may achieve abnormal profit in the long run due to over regulation of
government and promotion of competition by regulating bodies.
 High barriers to entry and exit: Furthermore, the monopoly market structure has high
barriers to entry and exit for new firms in the market. In other words, a new firm requires
huge investment in order to enter a monopoly market that has no competition till present
(Sheshinski, 2016). Hence, the barriers to entry are at extreme level for a new entrant.
 High control over price: Being a single seller in the market with no substitutes, the
monopoly firms are the price makers. The monopoly firms have the right to decide the
price of the products and services that are offered to the customers.

ECONOMICS ASSIGNMENT 4
The primary factor that is considered by the monopolist firms to determine the price of its
products and services is total revenue. A monopolist firm produce its products at an output level
at which the total revenue is at its highest point to earn maximum profit (Sheshinski, 2016). The
total revenue curve has been presented herein below:
Figure: Total Revenue Curve of a Monopolist Firm
Source: (White, 2015)
The above figure shows that M is the output level at which the total revenue is at its
maximum point. Furthermore, a total revenue curve is inclined in the middle and at its highest