The Government Created Monopolies Economics Essay

1.0 Introduction

Microeconomicss are the subdivision of economic sciences that surveies single units. For illustration: Households, houses and industries. Harmonizing to Economics ( Sloman, et Al, 2003, p.

6 ) , microeconomics are the surveies of interrelatednesss between these units in finding the form of production and distribution of goods and services.The first undertaking of this assignment is to clarify monopoly and its charactheristics. Then, the 2nd undertaking is to distinguish the characteristics of perfect competition, monopolistic competition, oligopoly, and monopoly.To finish both undertakings, I & A ; acirc ; ˆ™ve done researches through the cyberspace, e-brary and referred to some books of microeconomics in the library.

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2.0 Definition of Monopoly

The word monopoly is a market construction in which there is a individual marketer and big figure of purchasers and selling merchandises that have no close permutation and have a high entry and issue barrier. In other words, monopoly exists when there is merely one house in the industry.

Examples of merchandises in monopoly market are electricity, H2O, overseas telegram telecasting, local telephone services and many more. LAP ( Lembaga Air Perak ) is considered as a monopoly.However, whether an industry can be categories as a monopoly is non ever clear. It depends on how narrowly the industry is defined.

2.1 Charactheristics of monopoly

There are a few charactheristics that we should see before sorting a market as monopoly.

Merely one marketerMany purchasersThere are barriers to entryMerchandise does non hold near replacementsMonopolist can merely command monetary value or measure but non bothCross-elasticity between the merchandise of a monopolizer and that of other houses must be really low or even zero.Monopoly exists when there is merely one marketer of a merchandise. Monopoly house is the lone house in the industry selling a merchandise which has no close permutation. Monopoly market is the topographic point where the monopoly house operates.

So fundamentally there is no difference between a house and an industry in monopoly as there is merely one marketer. A monopolizer is a monetary value shaper since there is one marketer or manufacturer and it has the market power to command over the monetary value.Monopoly signifier would sell a merchandise which has no close replacement. It means consumers or purchasers could non happen any replacement for the merchandise. For illustration, TNB ( Tenaga Nasional Berhad ) is a local public public-service corporation which has no close replacements. However, if the purchaser can happen any replacement for electricity such as solar energy, so this merchandise is no more in monopoly. In other words, a monopoly can non be if there is a competition or any utility merchandise.

In a monopoly market, there are rigorous barriers to the entry of new house. Barriers to entry are natural or legal limitations that restrict the entry of new houses into the industry. A monopolizer faces no competition because of barriers of entry.

Types of barriers will be discussed in item in the following subdivision.Ad in monopoly market depends on the merchandises sold. If the merchandises are luxury goods such as imported autos, so the monopoly needs some advertizement to inform the consumers on the goods. Local public public-service corporations such as H2O, electricity and place phone services do non necessitate advertizement by the monopolizer since the consumers know from where to obtain the merchandises.

2.2 Natural Monopoly

Natural monopoly can originate due to economic sciences of graduated table. Harmonizing to the theory of economic systems of graduated table, larger the house, lower would be the cost of production.

In other words, one individual house can run into the full demand with lower monetary value charged than more houses.In the instance of natural monopolies, seeking to increase competition by promoting new entrants into the market creates a possible loss of efficiency. The efficiency loss to society would be if the new entrant had to double all the fixed factors – that is, the substructure.It may be more efficient to let merely one house to provide to the market because leting competition would intend a uneconomical duplicate of resources.

2.3 Government-Created Monopolies

Government creates monopolies to forestall houses from come ining into a market. This can be done through trouble in obtaining licence to run in the market or supplying patent and right of first publications to a monopoly house.In order to make monopolies, authorities would put up some legal barriers such as the authorities franchise ( grants monopoly rights to private companies, for illustration: Astro in Malaysia ) , authorities licence ( houses need to obtain licence to run any concern ) , patent ( an sole right to the production of an advanced merchandise ) , right of first publication ( sole right given ) , control over natural stuff ( control over the supply of natural stuff in which a house can have a bigger part of natural resources ) .

2.4 Monopoly diagram

hypertext transfer protocol: // can keep super-normal net incomes in the long tally. As with all houses, net incomes are maximised when MC = MR.

In general, the degree of net income depends upon the grade of competition in the market, which for a pure monopoly is zero. At net income maximization, MC = MR, and end product is Q and monetary value P. Given that monetary value ( AR ) is above ATC at Q, supranormal net incomes are possible ( country PABC ) .

3.0 Alternate Market Structures

Structures are classified in term of the presence or absence of competition.

When competition is absent, the market is said to be concentrated. The market construction under which a house operates will find its behavior. Firms under perfect competition will act rather otherwise from houses which are monopolizers, which will act otherwise once more from houses under oligopoly and monopolistic competition.


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