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Monoploy

In: Business and Management

Submitted By c0r3y
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Required reading for the final for chapter 12:Monopoly and price discrimination

Market power alters the relationship between a firm’s costs and the price at which it sells its product to the market.
Perfectly competitive firm takes the price as given and then chooses the quantity it will supply so that price equals marginal cost. By contrast, the price charged by a monopoly exceeds marginal cost.

Important note on Monopoly

It is perhaps not surprising that monopolies charge high prices for their products. Consumers of monopolies might seem to have little choice but to pay what ever the monopoly charges. But if so, why does copy of Window not cost $1000? Or $10,000. The reason, of course, is that if Microsoft set the price that high, fewer people would buy the product. People would buy fewer computers, switch to other operating systems, or make illegal copies. Monopolies cannot achieve any level of profit they want because high prices reduce the amount that their consumers buy. Although monopolies can control the prices of their goods, their profits are not unlimited.
As we examine the production and pricing decisions’ of monopolies, we also consider the implications of monopoly for society as a whole.

Monopoly firms, like competitive firms, aim to maximize profit. But this goal has very different ramification for competitive and monopoly firms. In competitive markets, the buying decisions of self-interested consumers and the selling decisions of self- interested producers are unwittingly guided by an invisible hand to promote general economic well-being.

By contrast, because monopoly firms is often unchecked by competition, the outcome in a market with a monopoly is often not in the best interest of society.

Why monopolies arise?

A firm is am monopoly if it is the sole seller of its product and if its product does not have close...

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