2. How easy or difficult is it for a new seller to enter a monopoly? 3. How does a firm in a monopoly decide upon a selling price? 4. What is the long-run strategy of a firm in a monopoly? 5. What are...

Extracted text: 2. How easy or difficult is it for a new seller to enter a monopoly? 3. How does a firm in a monopoly decide upon a selling price? 4. What is the long-run strategy of a firm in a monopoly? 5. What are some of the problems with a monopoly?


Extracted text: Monopoly. A monopoly is the least competitive market structure. It has only one seller. There are no substitutes to a truly monopolized good, so the firm can be a price searcher (or price seeker). The firm can produce and sell its product in the sole interest of profit maxímization. A monopoly can develop for a number of reasons. A natural monopoly results when it seems impractical for multiple firms to control a single resource, as is often the case with public utilities, such as electricity. Also, if a firm captures economies of scale, it can prevent other firms from being able to produce at a cost that would allow them to be competitive. A firm that holds a copyright or a patent has an artificial monopoly. Monopolies can be problematic. One reason is that the product scarcity is partially contrived. A firm can withhold resources from consumers in order to earn a higher price. A second reason is welfare loss, or "deadweight loss." When a firm withholds goods, it eventually sells fewer goods, as some consumers can't afford the higher price. As a result, production must decrease. Although the price rises above the market equilibrium price, there is no surplus. The lost surplus is the "welfare loss." X-inefficiency is another reason why monopolies often take heat. Without competition, there is little incentive to keep costs down; resources may used inefficiently. Examples of Monopolistic Markets . trash collection postage stamps cable TV service •public transportation •electricity patented pharmaceuticals