Ch 10 HW

Ch 10 HW - Stephanie Chin Microeconomics Ch 10 Homework 1 I...

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Stephanie Chin Microeconomics Ch. 10 Homework 1. I partially agree, although all firms compete for consumer dollar, pure monopolies make this competition either all or nothing. Consumers can either buy the product from the monopoly or they can not buy the product at all. In this way, the company must still compete to get the consumer to buy their product but if a monopoly holds, they hold a much higher incentive for the consumer to buy from them. Therefore if the demand for a product is very elastic consumers are likely to buy the product from the monopoly whether or not the price changes, and therefore the competition for the monopoly is not that great. If the demand for a product is inelastic they must compete to get consumers to buy their product because if they raise prices consumers are less likely to buy their product. 2. Barriers to entry prohibit other firms to enter an industry which in turn allows monopolies to exist. Barriers include economies of scale, patents and licenses, control of resources, and pricing and other strategies. If in a market only one firm can produce at the lowest cost it will allow monopolies. Economies of scale keep small businesses out because they cannot produce at low enough cost to stay in business, and large scale businesses do not start up because of the financing it takes to jump into the market as an already large firm. Patents give rights to inventors so that their product is not copied by others, but this can lead to oligopoly or even competition once patents run out. Licenses are given to firms by the state and therefore the state limits the amount of firms in that industry, this may also allow for an oligopoly. If a firm owns the essential resources to produce a product they are the only ones that either have the ability to sell out the resources or produce it themselves. Lastly, firms may respond to entries into the industry by changing their prices or taking up other strategies to make their product more affordable or the other firm’s product less likely to sell. 3. In a monopoly the demand curve is the market demand curve and it is not perfectly elastic, instead it is down sloping. A monopoly can only increase sales by lowering the price but by lowering the price, the average revenue is also lowered. Monopolies stay in the elastic part of their demand curve because if they
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This note was uploaded on 02/21/2008 for the course ECON 203 taught by Professor Al-sabea during the Fall '05 term at USC.

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Ch 10 HW - Stephanie Chin Microeconomics Ch 10 Homework 1 I...

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