Duncan B.
Economics Homework Nine
1. An example of an oligopoly is the computer business. There are only a few companies, there are very high barriers to entry (it is very expensive to start a new one) and computers are basically similar goods.
2. Perfect competition, perfectly contestable markets, monopolistic competition, oligopoly, cartel, and monopoly are the six types of markets in order from least competition to most competition. Those with most competition are typically cheaper and those with least are usually more expensive.
3. The first probably refers to monopolistic competition. The second probably refers to perfect competition. The third refers to a monopoly.
4. Monopolies arise in five ways. First, a government created monopoly, where competition is prohibited by law. Second, the difficulties acquiring licenses to enter business, such as law practice, which requires three years at law school and the passing of several exams. Third, the control of a valuable resource, such as the famous Standard Oil Company, run by John D. Rockefeller, which at one time controlled 88 percent of the oil in the United States. Fourth, economies of scale for one company can force all major competitors to quit due to higher costs for them. Fifth, the government grant of patents and copyrights to inventors can yield a monopoly.
5. A monopoly is still limited by the Law of Demand: the higher the price, the lower the quantity sold. They lose less money when they double the price for their widget than a firm with competition does, but they still lose money.
6. Both firms will reduce output in this instance, as that is where their combined profits are maximized.
7. Most government regulation in economic affairs is detrimental, with a few exceptions, which monopolies are not one of. Monopolists do charge higher prices, but current government regulation prevents them from worsening their products. A monopoly is usually the result of intensive and dedicated labor, and government breakup of them only takes the reward from the founders.
8. The deadweight loss is the total loss in consumer surplus when a monopoly reduces output to increase price per unit. For a monopoly, it is defined as P-MC.
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