Essay On Monopoly Market Structure

Added on - 23 Feb 2020

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Running Head: ECONOMICS FOR BUSINESS1Economics for BusinessFollowing the guidelines of the Course ID guidelinesStudent’s NameUniversity
ECONOMICS FOR BUSINESS2In the particular study essay, the discussion is rightly focused on monopoly marketstructure. By identifying the monopolistic market structure, the study paper evaluates how andwhy governments of modern economies may want to regulate the price setting of a naturalmonopoly (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 firmcan be identified as the single supplier in a given market area having no competitors. Theconcept of natural monopoly needs to be identified so that one can recognise why monopolymarket structure takes place.Evidently, due to certain barriers to entry in a specialised industry, only a single firm canmeet the requirement. Thus, the company will have the advantage to set up monopoly marketstructure. Also, high start-up costs of business or patenting of products can create monopolymarket (Jamal & Sunder, 2014). In the study, the key features of a monopoly market structurehave 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 ofmonopoly firm in a given market condition.Monopoly market structure is said to be achieved when a single firm prevailing in anidentified industry having no competition. In terms of regulatory view, if a company has got 25percent 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. Forinstance, most of the Gulf countries have got access to the abundant natural resource of crude oil.
ECONOMICS FOR BUSINESS3Hence, the countries have a monopoly right in the global crude oil market (Wessels, 2012). Thekey characteristics of the market structure have been analysed as follows:Lack of substitutes:In such market structure, the single operating firm produces goodsthat have no close substitutes. In some cases, uniqueness of products offers a monopolyright over a given market (Spulber, 2015).Barriers to entry:In such market structure, the monopolist market player createssignificant 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 entirelycontrolled by the monopolist business.Market Competition:The monopolist firm has no close competitors due to uniquenessof products developed (Park, 2012).Profitability:In the meanwhile, a monopolist firm can continue to achieve supernormalprofit structure in the long-run business although it can be loss making or maximisingrevenue 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 monopolistfirm, the firm decides the price of offered products (Sadanand, 2008). Since themonopolist firm has the maximum control over pricing of product, it makes the firm aprice maker in a given market.In a monopolist business, the total revenue of the firm is determined by multiplying totalquantity demanded and price. The total revenue curve of a monopoly business is presented asbelow:
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 aparticular quantity of product at which the total revenue will be highest to maximise itsprofitability. Hence, the level of quantity produce is determined by the profit maximising factorsin place of other market mechanism such as demand and supply of product. On the basis of theabove characteristics of the natural monopoly market structure, a diagram has been presentedherein below for further understanding:
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