monopoly maxmimize profit by producing at MC = MR. definition for monopoly power is when a firm can set its own price. monopoly can only exist when the demand is inelastic.
the situation you are describing is called contestable market. if there is a threat of entry, it is not called monopoly.
An exclusive right to profit from something isn't a monopoly in the larger sense, if the product can be avoided entirely.
It's pretty hard to come up with an example of something where there is no choice, or where there is no alternative, if the price is high enough. In some cases the alternative might not be strictly legal, but that is part of what I meant by price.
you are taking monopoly literally. perfect monopoly doesn't exist in the real world; nor is perfect competitive market.
a exculsive right to a firm to set price is a monopoly in a market.
The only clear monopoly I can see is the electric company that serves your house/city/community. While there are hundreds of electric cos. and co-ops, typically onely one serves an area. Of course, each and every one is controlled by a government body which controls their profits. And, yes, there are alternatives to the local elec. company, but typically only on an individual user-basis (solar comes to mind), not in a town/city-wide basis. If youwant elec. service, it's either by the only provider in your town or you have to come up with your own alternative....solar, generator, whatever.
And I doubt you'll ever really see any competition to electric service coming into fruition.....the barriers to entry are enormous for up-and-comer services and most utilities have an exclusive right-to-serve contract with the local gov't. Breaking up, for instance, ConEd, would be no small feat, unlike splitting up AT&T was done into the Baby Bells during the '80's.
And I doubt you'll ever really see any competition to electric service coming into fruition.....the barriers to entry are enormous for up-and-comer services and most utilities have an exclusive right-to-serve contract with the local gov't. Breaking up, for instance, ConEd, would be no small feat, unlike splitting up AT&T was done into the Baby Bells during the '80's.
That's what I said in the first place, and was supposedly "pwned", which is why I've had to explain what I meant.
And all there is is the real world, something economists seem to forget sometimes.
halik
Lifer
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monopoly price : price @ marginal cost= marginal revenue
competitive price: price = marginal cost
So the only way a monopoly could have 0 economic profit is if price was set at marginal revenue (p=mr) and since monopoly price is defined mc = mr, this would imply tha p=mc, which is the definition of competitive price. I can draw you a graph if this explanation isn't good enough...
<- B.S. Economics, 2006
- Mar 20, 2000
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as for when a monopoly can exist, it can exist any time there is a high sunk cost, but low variable cost, because it only takes a couple of examples of it 'punishing' a new competitor before people learn they're only going to get burned by getting into the market.
sure... just need an industry thats not profitable, or a company with very high fixed costs.
In a monopoly marginal revenue should equal margnial price. So the price to make one additional unit, should be half of what you charge. But, if fixed costs and other costs that dont go into marginal costs that are so high they dont produce a profit.
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all i know is that in one post you say an exclusive right to profit isn't a monopoly in some "larger sense," whatever the hell that means. then you agree with dawhim's post that an exclusive right to set price is a monopoly.Originally posted by: Tom
That's what I said in the first place, and was supposedly "pwned", which is why I've had to explain what I meant.
And all there is is the real world, something economists seem to forget sometimes.
just because you don't have many or any customers doesn't mean you don't have a monopoly. you can have a monopoly and still not be profitable.
halik
Lifer
- Oct 10, 2000
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OK, ENOUGH!!
This is a micoecononics question, not a political one or "give a screnario when ..." or "what do you think happens when". Please, if you know jack about microeconomics, STFU. Odds are the question is class-related, so how you feel about monopolies / government is completly irrelevant to the topic on hand. Geez... :roll:
This is a micoecononics question, not a political one or "give a screnario when ..." or "what do you think happens when". Please, if you know jack about microeconomics, STFU. Odds are the question is class-related, so how you feel about monopolies / government is completly irrelevant to the topic on hand. Geez... :roll:
Originally posted by: ElFenix
all i know is that in one post you say an exclusive right to profit isn't a monopoly in some "larger sense," whatever the hell that means. then you agree with dawhim's post that an exclusive right to set price is a monopoly.Originally posted by: Tom
That's what I said in the first place, and was supposedly "pwned", which is why I've had to explain what I meant.
And all there is is the real world, something economists seem to forget sometimes.
just because you don't have many or any customers doesn't mean you don't have a monopoly. you can have a monopoly and still not be profitable.
By larger sense, I meant that a monopoly isn't sustainable outside of some kind of temporary restriction, a restriction of time, or place, that won't last.
And I didn't agree with dawhim, I said the opposite, I think you are reading his response as coming from me.
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no, i'm reading you agreeing with him. 'right, that's what i said in the first place'
and of course the monopoly may be transient, but it is still a monopoly while it exists, able to set price where MR=MC. it may only be able to exist in the short run, it may be able to exist only in a small region (for example, at the corner of 24th and guadalupe in austin, there used to be only 1 pizza place. it had a monopoly on pizza at that corner. but, that corner isn't a relevant market because anyone can walk a little bit down the street and go to another pizza place, but if all the pizza shops in the area were owned by the same company, then maybe they'd have a monopoly on pizza. another good one is luxury car dealers. often, there will only be one company that owns the 1 or 2 mercedes dealers in an area. they have a monopoly on sales of mercedes to end users. that gives them a monopoly on mercedes. now, mercedes doesn't have a monopoly on luxury cars, so the dealer will attempt to price discriminate between buyers who won't switch to another car brand, and buyers who'll go to lexus or bmw if the merc becomes too pricey)
those are still monopolies.
a really good example is for railroad lines. lets say a railroad line runs from chicago to san francisco. on it's way there, it runs past farmer bob's. farmer bob needs about 1/2 car load per season. the railroad is the most efficient way to move the load, followed, distantly, by trucking, which has a much higher variable cost, but lower sunk costs. now, where is the railroad going to price farmer bob's load? where MR=MC, and no one is ever going to compete with them on it because the cost structures don't work out.
Originally posted by: AdvancedRobotics
strange, i thought you were talking about the board game
Me, too. I was gonna go look for the modern, updated board game that has current dollar amounts.
the question is about monopoly charging mr=mc and they are not making mr=mc. look up cross subsidy.
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