Concept Of Monopoly

Submitted By jackparker2000
Words: 4470
Pages: 18
Open Document
Professor C.L. Ballard
Fall Semester, 2011

ECONOMICS 201 KEY CONCEPTS FROM THE FINAL PART OF THE COURSE

I. Regulation and Antitrust

A. An industry is a natural monopoly if a single firm can produce all of the relevant output at a lower average total cost than could any combination of two or more firms. This will occur where average total cost is declining throughout the relevant range. It was once thought that electric-power utilities are natural monopolies, although there is evidence that this may not be the case. In fact, there are probably few natural monopolies, if any.

B. If a natural monopoly does exist, marginal-cost pricing is problematic, since the firm would suffer economic losses if it were to charge a price that is equal to marginal cost. However, monopoly profit maximization is also unattractive. As a result of these problems, governments have sometimes responded by regulating the monopolies. Often, there is an attempt to guarantee a “normal” rate of return. This would mean that the firm would be required to charge a price that is equal to average total cost. The problem with this is that it may reduce the incentives to control costs. If a regulated industry is in fact not a natural monopoly, the best strategy is probably to allow new firms to enter the industry, so that competition can take hold.

C. Much of the regulation in the United States has not dealt with natural monopolies, but rather with industries that could be very competitive. Here, the regulation has come about as a result of the political power of the industries themselves. In many cases, regulation has stifled competition and led to higher prices. Starting in the late 1970s, deregulation succeeded in getting lower prices in trucking, airlines, and other industries.

D. The antitrust laws began with the Sherman Act in 1890, and were expanded by the Clayton Act in 1914. The antitrust laws prohibit monopoly, price fixing, certain types of price discrimination, tied sales, predatory pricing, and interlocking directorates. The most spectacular uses of these laws have been the breakups of large companies, such as Standard Oil and American Tobacco in 1911, ALCOA in 1945, and AT&T in 1984.

E. Other important antitrust cases include the electrical-equipment conspiracy, in which General Electric, Westinghouse, and other firms were found guilty of having fixed prices in the late 1950s. More recently, Archer, Daniels, Midland was fined for price fixing in the market for lysine in 1998.

F. The antitrust laws can also be used to prohibit mergers, in cases where the mergers will reduce competition substantially. A conglomerate merger is one between two firms in unrelated industries. Conglomerate mergers do not pose much of a problem for competition, and they are usually not the subject of antitrust actions. A vertical merger is one between a firm and one of its input suppliers. Vertical mergers may present more problems than conglomerate mergers, but vertical mergers still are not a major concern for antitrust officials. The main concern of the antitrust authorities is with horizontal mergers, which are mergers between firms in the same industry. Even with horizontal mergers, it is not always true that the mergers are a problem from the perspective of competition. If the merger is between two small firms in a very competitive industry, the resulting combined firm is unlikely to wield much market power. On the other hand, if two large firms merge, it is possible that the degree of competitiveness of the industry will be reduced substantially. In spite of this, the antitrust authorities have allowed many very large horizontal mergers.

II. Labor Markets

A. The benefit that a firm gets from hiring an extra unit of labor is the marginal revenue product (MRP). The MRP is equal to the marginal product multiplied by the marginal revenue: MRP = (MR)(MP). Marginal product is decreasing. Marginal revenue is
Show More

Related Documents: Concept Of Monopoly

Study Guide For Second Exam

Study Guide for Second Exam Psychology 181 – Prof. Hope This study guide lists key concepts from lecture and the textbook that you should know as you prepare for the exam. I recommend the following plan to prepare. A study group would likely be very helpful for steps 2 and 3. 1. Read the relevant textbook chapters if you have not already done so. 2. Look at the book and your notes and handouts from lecture to find out about each concept listed below. 3. Review the concepts until you…

Words 946 - Pages 4

Exam study guide Essay

9/22/13 8:35 PM Study Guide for Exam 1 General Points: Bring scantron sheet #882 (the tall thin green form) and a number 2 pencil to the exam. Make sure you have obtained all the class notes, since the material on the exam will come from lectures. All information from lectures could be covered on the exam, so know the information thoroughly. Questions will be true/false and multiple choice. Study Tips: Make notes from the lectures. Study to know all the details related to each concept…

Words 641 - Pages 3

Study Guide For Exam 1

Study Guide for Exam 1 I. Argument Identification: Be able to determine if a passage has an argument in it. If it does, you will be asked to underline the conclusion and circle the relevant indicator words. (You’ll find practice exercises on Blackboard.) a. Premise Indicators – These words usually, but not always, indicate that what follows is a premise. The statement that comes after one of these words or phrases will usually be a premise (evidence) that supports a conclusion. (Note:…

Words 1752 - Pages 8

Study Guide for exam Essay

Study Guide for Exam 1 Chapter 1: (questions 1-8) Understand the various HR practices (Figure 1.1 on page 2) Understand the term human capital Understand the responsibilities of an HR department (Table 1.1 on page 5) Know the qualities employers seek from job applicants (Table 1.2 on page 8) Know the important skills of a HR professional (Figure 1.3 on page 13) Understand the importance of ethics in HR (employee rights and ethical standards) Chapter 2: (questions 9-20)…

Words 554 - Pages 3

FInal Exam Study Guide Essay

MGMT410 Final Exam Study Guide YOU MAY WANT TO PRINT THIS GUIDE. 1. The Final Exam is open book, open notes. The maximum time you can spend in the exam is 3 hours, 30 minutes (the clock counts down your time in the upper right corner of the page). If you have not clicked the Submit for Grading button by then, you will be automatically exited from the exam. You can only access the exam once, so be ready to take it when you log in to it. 2. Click the Save Answers button in the exam frequently. If…

Words 1293 - Pages 6

Exam 2 Study Guide Answers

Exam 2 Study Guide You are responsible for all assigned materials, even those not emphasized here, though the contents of the exam are intended to be drawn either directly from this study guide. All Materials (lecture, Discussion, or Book): *Be able to define any and all highlighted terms. Be able to distinguish between terms in an applied fashion; that is, if a question asks which term/concept best answers a question, solves a scenario problem, or fits a certain description. *Even if something…

Words 504 - Pages 3

Exam 3 Study Guide Essay

Exam 3 Study Guide Distribution (Place) Chapters Bold letter indicates possible discussion question areas. Chapter 15 * Marketing channels 380. What is it that channels do (create utility, efficiency, etc.)? * Types of intermediaries 380 (fig 15-1) * Functions (fig 15-3) 381 * Direct versus indirect channels 382-383 * Industrial distributors 384/merchant wholesalers 387 * Dual distribution 386 * Industrial distributors versus manufacturer’s reps (know the…

Words 478 - Pages 2

Study Guide for Exam 1 Essay

Study Guide for Exam 1 – HIT 102 What is connectivity between computer systems? Capacity of health record systems to provide communication linkages and allow the exchange of health record data among information systems; Its’ linkage between the systems to enable information exchange. What are institutional users are and be able to identify some of them. Healthcare delivery organizations 1. Provide services 2. Evaluate and monitor use of resources 3. Seek reimbursement 4. Planning 5. Marketing…

Words 657 - Pages 3

Exam 1 Study Guide Essay

Psychology 101, Exam #1, Study Guide In preparing for this exam, be sure to review the following. Be able to define these concepts, describe them, explain them, and discuss them. This list is a guide and is not meant to indicate that I will not ask about anything else which we studied in class or which you read in the book. This list covers the MAIN POINTS. 1. Different types of mental health professionals, such as psychiatrists, social workers A psychiatric social worker is trained in…

Words 1264 - Pages 6

Essay on EXAM 3 Study Guide

EXAM 3 Study Guide (Chapters 10 &11) Socialization Process of how a particular society shapes its members with communal values and goals; acceptable behaviors. Nature vs. Nurture How much of what we have is due to NATURE= BIOLOGY NURTURE=THE WAY YOU’RE RAISED Jean Piaget: Cognitive Stages of Development* 1. Sensory motor= 0-2/ threw senses 2. Formal pre-opernational= 3-5/symbols (2 meanings to one sybol) 3. Concrete Operational=6-11/ cause and effect 4. Formal operations= 12+/ critical thinking…

Words 563 - Pages 3