Microeconomics: Principles and Theories

Running head: MICROECONOMICS: PRINCIPLES AND THEORIES
MICROECONOMICS: PRINCIPLES AND THEORIES
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MICROECONOMICS: PRINCIPLES AND THEORIES1
Table of Contents
Answer to Question 1(a)............................................................................................................2
Answer to Question 1(b)............................................................................................................3
Answer to Question 1(c)............................................................................................................4
Answer to Question 2.................................................................................................................5
References................................................................................................................................10

Price and costs
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MICROECONOMICS: PRINCIPLES AND THEORIES2
Answer to Question 1(a)
As per the provided article from the ‘Wall Street Journal,' the market structure of the
cement is considered as the monopoly firm (WSJ 2019). A single firm named the Cemex's
cement company dominates the cement market in Mexico. The mentioned company
dominates almost around 60 per cent share of the Mexican cement market. There are many
sources of market power. To name a few sources of market power are entry barriers, the
regulation set by the government, differentiation in goods produced, and rival companies.
Market power generates profitability in a firm. With the help of the diagram, the supernormal
profit of the monopoly firm is explained:
Figure 1(a): Profit structure of a Monopoly firm
(Source: Created by Author)
Figure 1-(a) displays the firm experiences a supernormal profit in a monopoly market.
This happens because they can set the price above the price set in the perfect competition,
and they have the presence of product differentiation. Hence, the sales of the product rise as

MICROECONOMICS: PRINCIPLES AND THEORIES3
the firm dominates all other firms. This generates more profit for the firms leading to high
revenue of the firm. The mentioned article, which is provided as a case study, points out that
there are three sources of monopoly power. The three sources were the presence of the rival
cement company in the United States, government approval, and barriers to entry
(Worldbank.org 2019). The rival cement companies from the United States are accusing
Cemex because of its dominance on an unfair basis in the Mexican market. Hence, this
Cemex Company in Mexico is setting a steep price so that sales their share increases both in
Mexico and in the U.S market. Recently, they are contributing around 60 per cent share in the
Mexican cement market.
Government regulation is considered as another source of market power. Here, in the
provided case study, the article noted that Mexican Cemex Company is dominating the
cement sector and liking the presence of the monopoly power. Both in the domestic and the
international country they are earning monopoly profit by setting monopoly prices. The
government has introduced the project of Cemex in order to improve the construction
companies in Mexico.
Another source of the market power in the mentioned case is the barrier of other firms
in entering the market. Since the government regulations are present, which is making the
Cemex cement one of the dominant firms. This is a leading restriction to the other firms
producing the same product to enter into the Mexican cement market.
Answer to Question 1(b)
In the United States, the selling price of cement by Cemex Company is $ 82, while for
the same product, the selling price is $ 160 in Mexico. As known, Cemex is a firm in a
monopoly market. It is the only firm, which dominates the sectors, producing cement. From
the case study mentioned in the article, it can be seen that there is discrimination in the rates