URGENT! Econ Question
At the profit-maximizing level of output for a monopolist, price
a. always exceeds average total cost.
b. equals marginal cost.
c. exceeds marginal cost.
d. equals marginal revenue.
e. is below marginal revenue.
Q2 Is single-price monopoly a socially more desirable market structure than perfect competition? Explain, as fully as you can. thank you!
- 1 十年前最愛解答
Question 1 : D
Marginal revenue refers to the change in total revenue from the sale of an additional unit of output. Therefore, when P=MR, the profit of the firm is maximized.
And just a quick reminder, some may put B as ans which is wrong. P=MC is the social efficient level but not the profit-maximizing level for monopolist.
First of all, perfect competition is hardly to be found in the reality. The main reason is that it is nearly impossible for us to get perfect information in the reality. In perfect competition, producers will not have incentives to improve their products as competition don't exist in the market and at prevailing market price level, consumers will buy all what producers supplied. Although there are nearly no competition in Single Priced Monopoly as well, there usually got govn't regulations on it.
Single-price monolopoly is socially more desirable when it is a natural monopoly. Where the industry is producing on the downward sloping part of the Long Run Industry Average Cost Curve(LRAC). When LRAC(given fixed input price) is downward sloping, the least costly way to serve the market is to concetrate production on the hands of a Single Firm where Average Cost for 1 firm to produce is lower than 2 firms to produce. This may due to huge capital cost is required to set up the business. If there are more than 2 firms to be existed in an industry, there may have a duplication of resources and inefficient production occurs.
There are several advantages for a Monopoly market:
1) Reduction in unecessary duplication of fixed capital
2) Uncertainty can be reduced due to entire control of the market.
3) Technological changes are possible
4) Economies of Scale can be achieved.
To my point of view, i don't think this is a good question. For perfect competition, homogeneous goods are supplied and for monopoly market, goods that are supplied are with no close substitutes. They have different kind of goods being suppied. We have to know what kind of goods that are supplied in order to determine which market structure is more desirable. And more, even Monopoly has some pros/cons, it is better than Perfect Competition as it does exist in the reality, however, Perfect Competition is nearly impossible to be found in reality.
Anyway, letz take necessities as an example, market structure perfect competition will be more desirable than a Single-priced monopoly in this case. This is because the market concentration (market power to influence price level) is too high for a Monopolist is too high, he may exploit consumers by setting up a very high price level. This may affect the social stability as people care abt that necessities so much, without that good, people may not be able to maintain their normal lives. Thatz why Govn't does impose regulations on Monopoly market.
If you want to elaborate more, producers in perfect competition are price taker and producer in Monopoly is price maker. In perfect competition, we are able to achieve Allocation Efficieny where the output level and price level are at P=MC, there are no further mutally benefits trade, all possible suplus has been gained . However, in a Monoploly, the output and price level is at MR=MC as producer is deemed to be rational and a profit maximizer. Since the monopolist's MR is always less than the price, the output level isnt the socially efficient level and there is a loss in economic surplus, a dead weight loss has occured.
Cheers !資料來源： myself
- 1 十年前
Q1 d, at this point if you go further your will get negative return.
Q2 No monopoly is not a more desirable structure than perfect competition. Monpololy normally form due to barrier of entry such as high capital requirement, government regulation etc. and normally monopoly are operating in a less efficient environment.