589-590) A natural monopoly is where one company produces a product at a lower cost to the consumer than any other company. In a natural monopoly the competition is not economic. An oligopoly is when there are several companies producing a product, instead of only one. (McConnell, 2008, pp. 455-457) They also act like a monopoly because they can control their prices.
A monopoly is where you can set prices almost everywhere you want, and there is no other competition. This is referred to as predatory pricing, where companies charge a price lower than production costs. These companies believe their competitors can’t afford the loses. Cable companies don’t worry about competition due to the protection they enjoy from the government. The cable companies get away with this by claiming they do not have competition, cities award them the contract by providing coverage, even though they may not have the lowest price.
A country can be a capital (or labor)-abundant nations and labor (or capital)-scarce nations which consider their comparative advantage in technologies, input productivity, and wages of labor. Free trade can bring a lot of advantage to us; however, it does not apply in real world. Tariff and non-tariff are the tools that use to trade protection or prevent the economy from undergoing adjustment during economic stagnation. Although tariff and other restriction can concede the economic losses and using resource with less efficiency, but protectionism argue that non-economic benefit such as a national security can more than offset those economic losses. Normally trade protection is use to secure domestic industry and labor union’s economy welfare.
Sheltering new industries may pay off later 4. Free trade allows companies the possibility of outsourcing the production of goods for domestic sale. Question No.3: Identify the major fallacies of international trade? Answer: 1. One fallacy is that trade is a zero sum activity, if one trading party gains, the other must lost.
This occurs with first degree price discrimination as consumers must pay the maximum that they were willing/able to pay, which may lower their real income. Moreover, the consumer surplus that they would have obtained at a lower price is transferred to the producers meaning that the producers gain at the expense of the consumer, which is definitely undesirable. On the other hand, although the consumer may be disadvantaged, the producer is likely to benefit from the price discrimination in this way, especially if the firm is a dominant or monopoly firm, as it has the ability to set prices higher than they would be in a perfect competition model. Higher prices means that the firm’s revenue will increase, and it is likely that their profit will too, as monopolies are able to extract consumer surplus and transfer it into supernormal profits. Consequently, these profits can be reinvested into the
Maximizing profit which means total revenue minus total goal is a competitive firm’s goal. The competitive firm takes the market price given and then chooses how much supply is needed so that a sales price can be determined for profit. The monopoly firm determines their price on the quantity of products to sell. The monopoly decides how much of its product to make and what price to charge for it. Individual financial gain determines the price for oligopolies.
Monopoly is where only one company is providing a good and or service. Businesses may maximize profit in each market type by agreeing upon a lay down price. Perhaps businesses cannot agree upon a set price then the price is going to be above marginal cost. If the company is in competition with other companies in the same market, making decisions about prices, how they advertise, output, etc, can influence the profits of every, if not all companies in the same market. This is where management gets involved to ensure the company that their strategic way of thinking and planning can and will allow the company to gain
To stay profitable, sellers must receive minimum prices that “cover” their marginal costs (McConnell et al., 2009). If selling a particular service generates more revenue than what it costs then sell it, if not then don’t. Pricing and Non-Pricing Strategies Pricing strategy is how a business depends on how to maximize profits. According to (McConnell et al., 2009) not all sellers must create or accept a “one-for-all” price. Most firms have “market power” or “pricing power” that allows them to set their services prices in their best interests.
They make their own prices, which would in most cases be more of a benefit to the producer. Both structures make it very difficult for others to enter the industry, limiting and sometimes blocking entry and competition. Industrial Regulation seeks to prevent unfair practices of restricting market entry, opening markets up for competition. Ideally, prices with regulate themselves in a fair competition, preventing one or a few companies from setting the prices that would be deemed as inappropriate. It also works to prevent the practices of unfair pricing and charging higher prices to consumers while the companies produce less product, limiting choices for consumers.
Differentiating Between Market Structures ECO/365 There are four main market structures that the majority of companies and firms are labeled under. They are; perfect competition, monopoly, monopolistic competition, and oligopoly. A perfect competition is where the price of a product or service is made by the demand of which that is being supplied. A monopoly is where a firm gains all sales due to its supply power and it prevents other firms from entering the same market. A monopolistic competition is where several firms compete in the same market offering similar products or services but the products differ which makes it not a perfect competition.