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Essay On Monopoly Market Structure

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Added on  2020-02-24

Essay On Monopoly Market Structure

   Added on 2020-02-24

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Running Head: ECONOMICS FOR BUSINESS1Economics for BusinessFollowing the guidelines of the Course ID guidelinesStudent’s NameUniversity
Essay On Monopoly Market Structure_1
ECONOMICS FOR BUSINESS2In the particular study essay, the discussion is rightly focused on monopoly market structure. By identifying the monopolistic market structure, the study paper evaluates how and why governments of modern economies may want to regulate the price setting of a natural monopoly (Abdin, 2008). The study applies economic principles to the concept of benefits, costs,and structure of monopoly market to support the argument. Precisely, a pure monopolistic firm can be identified as the single supplier in a given market area having no competitors. The concept of natural monopoly needs to be identified so that one can recognise why monopoly market structure takes place. Evidently, due to certain barriers to entry in a specialised industry, only a single firm can meet the requirement. Thus, the company will have the advantage to set up monopoly market structure. Also, high start-up costs of business or patenting of products can create monopoly market (Jamal & Sunder, 2014). In the study, the key features of a monopoly market structure have been discussed stating the advantages as well as disadvantages of such market structure. Also, revenue curves for a monopoly firm have been analysed for better understanding. Lastly, providing a case study, the paper discusses how government should regulate price setting of monopoly firm in a given market condition.Monopoly market structure is said to be achieved when a single firm prevailing in an identified industry having no competition. In terms of regulatory view, if a company has got 25 percent of the entire market share, the firm is considered to be a monopoly business (Shaffer, 2012). However, a natural monopoly occurs if an organisation has got natural advantages such asstrategic location, plentiful mineral resources, and specialised regulatory requirements etc. For instance, most of the Gulf countries have got access to the abundant natural resource of crude oil.
Essay On Monopoly Market Structure_2
ECONOMICS FOR BUSINESS3Hence, the countries have a monopoly right in the global crude oil market (Wessels, 2012). The key characteristics of the market structure have been analysed as follows:Lack of substitutes: In such market structure, the single operating firm produces goods that have no close substitutes. In some cases, uniqueness of products offers a monopoly right over a given market (Spulber, 2015). Barriers to entry: In such market structure, the monopolist market player creates significant barriers to entry for new firms trying to enter the market (Shaffer, 2012). Clearly, barriers to entry for newcomers are at extreme level as the industry is entirely controlled by the monopolist business. Market Competition: The monopolist firm has no close competitors due to uniqueness of products developed (Park, 2012). Profitability: In the meanwhile, a monopolist firm can continue to achieve supernormal profit structure in the long-run business although it can be loss making or maximising revenue as well (Liu, 2011). In case abnormal profits can be achieved in the long-term, the monopolist firm will face definite competition from other market players. Thus, abnormal profit can be erased for a monopolist firm. Control over Price: As there is no close substitute of products offered by a monopolist firm, the firm decides the price of offered products (Sadanand, 2008). Since the monopolist firm has the maximum control over pricing of product, it makes the firm a price maker in a given market. In a monopolist business, the total revenue of the firm is determined by multiplying total quantity demanded and price. The total revenue curve of a monopoly business is presented as below:
Essay On Monopoly Market Structure_3
ECONOMICS FOR BUSINESS4Figure: Total Revenue of a Monopoly BusinessSource: (Colander, 2013)It can be seen from the above diagram that the monopoly business chooses to produce a particular quantity of product at which the total revenue will be highest to maximise its profitability. Hence, the level of quantity produce is determined by the profit maximising factors in place of other market mechanism such as demand and supply of product. On the basis of the above characteristics of the natural monopoly market structure, a diagram has been presented herein below for further understanding:
Essay On Monopoly Market Structure_4

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