Summary of chapter 13 Essay Example | Topics and Well Written Essays - 750 words

Summary of chapter 13 - Essay Example The nature of return, production scale and technology decides the market structure of products. The book suggests that diamond company De Beers is a best example of monopoly but monopoly does not exist in America because of legal obstacles. Oligopoly is a market structure where there is small number of large producers and is more common to be found. In monopoly, there is an upward movement of demand curve which means there is reduce quantity of product supplied. The monopolist usually raises the price of the product by reducing the output and they achieve market power. And monopoly is all about market structure. Their intention is to increase profit and hold control over economy. The monopolist create barrier to entry for other producers and there are five principles to it. They are control of scarce resource or input, increasing return to scale, technological superiority, network externality and government created barrier. The monopolist has two effects on the revenue which is quantity effect and pricing effect. The monopoly marker is a price maker and they decide the demand and price of their product. Actually in monopoly there is no substitute for the product they sell. The fundamental cause to monopoly is barrier to entry. The main example of it is De Beers according to the author. Here the government gives a single firm, the exclusive right to produce a particular good. In monopoly, there is sole producer, downward sloping curve, price maker and reduce price to increase sales. The monopolist’s marginal revenue is less than price of the good. The monopolist receives economic profits as long as price is greater than general cost. The monopolist practice price discrimination to increase their profit and recue dead weight loss. But for this, the firm must analyse the customer’s willingness to pay. The author expressed the monopoly versus perfect competition and welfare effects o f the monopoly. The chapter describes