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Posted: May 3rd, 2023

ECON-Unit 7 Assignment : Monopoly Market Decisions

ECON-Unit 7 Assignment : Monopoly Market Decisions
Assignment Instructions

What are the four most important ways a firm becomes a monopoly? Will a monopoly that maximizes profit also be maximizing revenue? Will it be maximizing output? Explain.
Assume the graph below represents the market for a monopolist. What quantity will the monopolist produce, and what price will she charge? What will her total revenue, costs, and profit be at this production level? What will the deadweight loss for society be at this level of production? (Assume the MC curve is a straight line between the relevant points for this calculation.)

market for a monopolist
Guidelines

Essay assignments should conform to APA format

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Introduction:
A monopoly market is a market structure where a single seller sells a unique product without any close substitute to a large number of buyers. The monopoly firm has the power to influence the price and quantity of the product in the market. This essay will discuss the ways a firm becomes a monopoly and explain whether a monopoly that maximizes profit also maximizes revenue and output. Additionally, the essay will analyze a graph representing the market for a monopolist and determine the monopolist’s quantity produced, price charged, total revenue, costs, and profit at this production level, as well as the deadweight loss for society.

Four ways a firm becomes a monopoly:
A firm can become a monopoly through the following four ways:

Control over essential resources: A firm can become a monopoly if it has control over the essential resources required to produce a particular product. This control enables the firm to control the supply of the product and hence influence the price of the product in the market.

Government regulation: The government can grant a firm a monopoly by giving them the exclusive right to produce and sell a particular product. This is often done to promote public welfare, such as in the case of utilities like water and electricity.

Economies of scale: A firm can become a monopoly if it can produce the product at a lower cost than its competitors. This can be achieved through economies of scale, where the firm can produce the product in large quantities at a lower cost per unit than its competitors.

Intellectual property: A firm can become a monopoly by obtaining patents or copyrights for its products, preventing other firms from producing similar products.

Maximizing profit, revenue, and output:
A monopolist can maximize profit by producing the quantity of output where marginal revenue (MR) equals marginal cost (MC) and then charging the price that corresponds to that quantity on the demand curve. This is because a monopolist can influence the price of the product by controlling the quantity of output produced. However, the monopolist may not necessarily maximize revenue or output.

A monopolist can maximize revenue by producing the quantity of output where marginal revenue is zero, which occurs at the point where the demand curve is elastic, also known as the unit elastic point. However, at this output level, the monopolist’s profit will be zero, and any increase in output beyond this level will lead to a decrease in total revenue.

A monopolist can maximize output by producing at the point where marginal cost equals demand, which occurs where the demand curve intersects the marginal cost curve. However, at this output level, the monopolist’s profit will be negative, and the firm will incur losses.

Analysis of the monopolist graph:
Assuming that the graph represents the market for a monopolist, the monopolist will produce at the quantity where marginal cost equals marginal revenue. This quantity is Qm, and the corresponding price is Pm, as shown in the graph.

The total revenue of the monopolist will be the product of the quantity and the price, which is (Qm x Pm). The total cost of the monopolist will be the product of the quantity and the average total cost (ATC), which is (Qm x ATC). The monopolist’s profit will be the difference between total revenue and total cost, which is [(Qm x Pm) – (Qm x ATC)].

The deadweight loss for society is the area between the demand curve and the marginal cost curve, from the quantity produced by the monopolist to the quantity that would be produced in a perfectly competitive market. This loss arises because the monopolist charges a higher price than the marginal cost, reducing the quantity produced and causing a welfare loss to society.

Conclusion:
In conclusion, a firm can become a monopoly through control over essential resources,

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