Monopoly And Monopolistic Competitive Market

947 WordsApr 22, 20154 Pages
The study of Microeconomics tells us of the different market structures the economy is made of. For the purpose of this paper, we will take an in depth look at three of these such market structures. Monopoly and Monopolistic competitive market along with Oligopoly. We will look at how and why these markets exist in conjunction with the advantages to the producer and the disadvantages to the consumer. As we research Monopoly in detail, compare the monopolistic competitive market and Oligopoly, we will also discuss the Gas market in relation to these types of markets. To begin to understand monopolies, we have researched several things. Why do they exist? What do they do, in response to the economy? Although, we don’t see many monopolies now due to antitrust laws to prevent monopolies from forming, there are natural monopolies. There are several reasons why monopolies exist. These are known as barriers to entry. Scarce resources with one producer can limit the number of other firms joining the market as competition. Increasing returns to scale prevents smaller firms from entering an industry because as output rises average total cost falls. This in turn enables these producers to grow and tolerate the monopoly. This is now where a natural monopoly is formed. A single producer of an industry has a large cost advantage over other smaller firms, if they existed in the industry. A natural monopoly includes local water, gas and electricity providers. These
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