Question

Write a short essay on the nature and sources of monopoly. As part of your answer, make sure that you explain why a monopolistic firm does not base its decisions on price, but rather on marginal revenue, and why that in turn means that the firm does not have a true supply curve in the same sense that a perfectly competitive firm does.

Answer 1

ANSWER:

Monopoly is a market structure where there is a single seller, selling a unique product in the market, with no competition and are termed price makers because they can control the market price of their product. Monopolies create inflation. Because monopolist can set any price they want, they will increase costs to consumers. It's also known as cost-push inflation

The primary gains of a monopoly include reducing resource waste, providing discounts to the economically weak, improving efficiency due to better investments, and research and development. Moreover, sometimes a monopoly is necessary in the country's economy. It ensures consistent delivery of a good or service that has a very high up-front cost such as water and electric utilities. It's very costly to build new electric plants or dams thus make economic sense to permit a monopoly to pay for these costs and control prices

A supply curve refers to the relationship between price and the quantity supplied at each price. Mostly it is upwards sloping, thus reflecting a positive relationship with the price of the commodity. The firm with monopoly power is a price maker as can decide the price at which it wants to sell its goods. The monopolist maximising its profit at the point where MR = MC. There is no supply curve under monopoly because there is no linear relationship between demand and supply. It is due to no unique price-quantity relationship, because quantity supplied by a firm under monopoly will not determined by price but instead by marginal revenue, provided the marginal cost curve