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Monopoly

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Introduction to Economic Analysis-
153400003
AS1

Using examples, discuss critically the costs and benefits of monopoly in modern economies.
Richard Itaman
Student Name: Allegra Campinoti
Student ID: 628548 Word Count: 2100

Monopoly is defined as “a market served by a single seller of a product with no close substitutes.” (388 ,Frank and Parker 2007) For a monopoly to be successful there can’t be any close substitutes that are able to provide a similar product or service the firm is offering. Monopoly can be formed if one or more combinations of five main factors are fulfilled. The first being exclusive control over important inputs, meaning that the firm has a unique product which is very hard to emulate. The second that it exploits economies of scales, the long-term average costs of the production of a certain quantity of a product will be much lower if only one firm is the producer. The third is the existence and use of patents, something that gives the right to a firm for the exclusive use and benefits of a certain idea produced by the firm. “ The protection from competition afforded by the patent is what makes it possible for the firm to recover its costs of innovation.” (390 ,Frank and Parker 2007) If patents were not present competition would cause price to reach marginal cost and the innovation and development would have a much slower pace. The fourth factor is Network economies; this occurs when the consumer’s demand of a certain product increases so much that eventually all the market is going to need the product, becoming more and more valuable as more consumers use it. The last factor is Government Licenses, a law where the government decides which firm will do a certain business.
It is worth looking at the benefits and costs of Monopolies in modern economies because it’s a very current issue. There are many examples of Monopolies in our

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