Large Number Of Small Firms Economics Essay

Thus monopoly means single seller. The four key of characteristics of monopoly are Single supplier, unique product, Barriers to Entry and Exit, and Specialized Information.

Answer of question 1

1.1 What is monopoly?

Monopoly is a market with only one seller and no close substitutes for that seller’s product. Monopolies arise because of barriers to entry that inhibits other companies from entering the market and exerting competitive pressure on the monopolist..

.1.2 Characteristics of monopoly

The four key of characteristics of monopoly are Single supplier, unique product, Barriers to Entry and Exit, and Specialized Information.

1.2.1 Single Supplier

The substance of monopoly is a market controlled by a single seller. The most important aspect of being a single seller is that the monopoly seller is the market. The market demand for a good is the demand for the output produced by the monopoly.

1.2.2 Unique Product

A monopoly become a single-seller status is because the product is unique and can’t find the close substitute and there are no close substitutes available for.

1.2.3 Barriers to Entry and Exit

In a monopoly market there is strong barrier on the entry of new firms. Monopolist doesn’t have competition. As there is one firm no other rival producers can enter the market of the same product.

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1.2.4 Specialized Information

The company preserves whole control over the market by using special information. This information may give the company the benefit of special production techniques. The specialized information may come from the form of legal tips regarding trademarks, copyrights and patents.

1.3 Diagram

Monopolies can maintain super-normal profits in the long run. As with all firms, profits are maximized when MC = MR. In general, the level of profit depends upon the degree of competition in the market, which for a pure monopoly is zero. At profit maximization, MC = MR, and output is Q and price P. Given that price (AR) is above ATC at Q, supernormal profits are possible (area PABC). With no close substitutes, the monopolist can derive super-normal profits, area PABC. A monopolist with no substitutes would be able to derive the greatest monopoly power.

1.4 Conclusion of question 1

In the conclusion, monopolies have advantages and disadvantages.

2.0 Introduction of question 2

There are four types of market structures, which are perfect competition, monopolistic competition, oligopoly and monopoly.

Answer of question 2

2.1 Perfect competition

Perfect competition has large numbers of both buyers and sellers. The goods produced by all sellers are identical, and there exist no legal, social or technological barriers to entering or leaving the industry. Example for the investment industry, finance industry.

2.2 Features/characteristics of perfect competition

The four key characteristics of perfect competition are large number of small firms, identical goods, perfect resource mobility and perfect knowledge.

2.2.1 Large Number of Small Firms

A perfectly competitive market or industry contains a large number of small firms, each of which is relatively small compared to the overall size of the market. 2.2.2 Identical Goods

Each firm in a perfectly competitive market sells an identical product. Every perfect competition firm produces a good that is a perfect substitute for the output of every other firm in the market. 2.2.3 Perfect Resource Mobility

Perfect competition firms are free to enter and exit an industry. They are not restricted by government rules and regulations, start-up cost, or other barriers to entry.

2.2.4 Perfect Knowledge

In perfect competition, buyers are completely aware of sellers’ prices, such that one firm cannot sell its good at a higher price than other firms. Each seller also has complete information about the prices charged by other sellers so they do not inadvertently charge less than the going market price.

2.3 Monopolistic competition

Monopolistic competition is the market with many sellers, but fewer than in the perfect competition. The classic example is restaurant industry, like pizza hut, domino pizza.

2.4 Features /characteristics of monopolistic competition

The four key characteristics of monopolistic competition are large number of small firms, product differentiations, resource mobility and Extensive Knowledge.

2.4.1 Large Number of Small Firms

A monopolistic competition industry contains a large number of small firms, each of which is relatively small compared to the overall size of the market.

2.4.2 Product differentiation

Product differentiation is responsible for giving each monopolistically competitive a little bit of a monopoly, and hence a negatively-sloped demand curve..

2.4.3 Resource Mobility

Monopolistically competitive firms are free to enter and exit an industry but they are relatively unrestricted by government rules and regulations, start-up cost, or other substantial barriers to entry.

2.4.4 Extensive Knowledge

In monopolistic competition, buyers do not know everything, but they have relatively complete information about alternative prices.

2.5 Oligopoly

Oligopoly consists of only a few sellers that may be producing either standardized or differentiated goods, with a focus on product and brand differentiation as in the monopolistic competition. Example for computer industry, mobile phone industry.

2.6 Features/characteristics of oligopoly

The three most important characteristics of oligopoly are small number of large firms, economies of scale and barriers to Entry

2.6.1 Small Number of Large Firms

Oligopoly is an industry dominated by a small number of large firms, each of which is relatively large compared to the overall size of the market.

2.6.2 Economies of Scale

Large companies controlling a significant portion of the market will experience what is known as economies of scale. An economy of scale has to do with a firm’s ability to negotiate lower costs due to the size of the company.

2.6.3 Barriers to Entry

Many of barriers of entry that companies in oligopoly markets may employ. A barrier to entry is a natural element that exists in the market that makes it difficult for new companies to be competitive.

2.7 Monopoly

Thus monopoly means single seller. Monopoly is a firm of market organization for a commodity in which there is only one single seller of the commodity. Example Tenaga Nasional sdn.bhd.

2.8 Features/characteristics of monopoly

The four key of characteristics of monopoly are Single supplier, unique product, Barriers to Entry and Exit, and Specialized Information.

2.8.1 Single supplier

Monopoly is a form of imperfect market structure where there is only one seller of a product. The characteristic feature of single seller eliminates the distinction between the firm and the industry. A monopolist firm is itself ‘the industry.

2.8.2 Unique product

A monopoly become a single-seller status is because the product is unique and can’t find the close substitute and there are no close substitutes available for.

2.8.3 Barriers to Entry and Exit

In a monopoly market there is strong barrier on the entry of new firms. Monopolist doesn’t have competition. As there is one firm no other rival producers can enter the market of the same product.

2.8.4 Specialized Information

The company preserves whole control over the market by using special information. This information may give the company the benefit of special production techniques.

2.9 Conclusion of question 2

In the market, there have 4 types of model which are perfect competition, monopolistic competition, oligopoly and monopoly.