Learning Team Reflection

Learning Team Reflection Week 3

ECO/ 561

March 7, 2011

Dr. Assefa Muluneh

Team Reflection Week 3

This week we are learning about the economics of a pure monopoly. When a company has a pure monopoly in an industry they are considered the price makers. The company has control of the total quantity supply and has primary control over pricing in the market. When we look at the difference between a monopolies compared to other markets we see that the demand curve for the industry is the demand curve for the market. The reason for this is because there are no other competitors present in the market. When looking at the demand curve for the pure monopoly it remains on a downward slope because the market is not perfectly elastic and the marginal revenue curve to slope below the demand curve. One of the causes of a pure monopoly is when a company has ownership of a certain resources. This causes entry into the industry to be very difficult and prevent the industry from having competitor in the market. One example that our reading gives us is The De Beers, a diamond company, but some monopolies are also right in our neighborhood. Some of our household utilizes are considered monopolies but with legal barriers of entry set in place by government. For a monopoly to become profitable they must find the maximum production to reach maximum profits, but on the other hand If a monopoly increases pricing to high they will achieve less profit. In a market that has a pure monopoly the company will need to run their production so the marginal revenue equals marginal cost.

Determining Quantity and Price in Monopolistic Competition

In our daily life we have an impact in dealing with those establishments or services. It is also observed that the price of same commodities in franchise (occasionally) or individual business varies from place to place, and this happens only because of the markets trend of monopolistically competitive nature. In this section of the course we basically know the reason why above situation happens and how the quantity demand and prices are fixed in the business in certain area.

Any firm can stay in business if it runs in profit. Incurring loss will make the business exit from the market, and business can survive only when it meets the cost. The elasticity of demand curve in the monopolistically competitive firm's is not perfectively but more elastic because they have to face few competitors, rivals and degree of product differentiation, or product substitutes.

To stay in business the firm need to maximize its profit or minimizes its loss, and to do that they need to determine the quantity, fix the price right, or adjust both in short run. The quantity demand is determine from marginal revenue (MR) and marginal

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