Monopoly and Fair Return

945 WordsNov 23, 20124 Pages
Chapter 10 (Tentative Due Date: by November 1) Question 2: Discuss the major barriers to entry into an industry. Explain how each barrier can foster either monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable? LO1 The major barriers to entry in an industry are economies of scale, legal barriers such as patents & licenses and other strategic or pricing barriers. Economies of scale occur only in large firms who are able to reach a minimum efficiency scale point and operate at that point for a long period. This high TC results in a low ATC and high efficiency. Once a huge firm innovates, it protects that very idea or product through patents disallowing other firms to copy…show more content…
What factors ended its monopoly? What is its new strategy for earning economic profit, rather than just normal profit? Despite producing 45% of the diamonds, De Beers was able to control the world price due to the ability to control its own production levels and high market share. The fact that so many diamond suppliers were coming through and providing alternatives such as synthetic diamonds forced De Beers to invest in advertising and promoting their own diamonds. These were factors simply out of De Beers control. More diamond reserves were being discovered and caused competition. So De Beers was forced to stop its operation as a monopoly and instead as “the diamond supplier of choice”. Problem 1: Suppose a pure monopolist is faced with the demand schedule shown below. Calculate the missing total‐revenue and marginal‐revenue amounts. Assuming that MC is $39, determine the profit‐maximizing price and profit‐maximizing output for this monopolist. Assuming that the ATC is $52.50, what is the monopolist’s profit? Verify your answer by comparing it to the Total Revenue -Total Cost approach. LO2 Total Revenue from top to bottom, in dollars: 0, 100, 166, 213, 252, 275, 288, 294, 296, 297, 290 Marginal Revenue from top to bottom in dollars: 100, 66, 47, 39, 23, 13, 6, 2, 1, -7 The profit maximizing price is $63 and profit-maximizing output is 4. Monopolist’s profit

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