Takehome quiz 8 - Take-home Quiz 8 HONOR CODE APPLIES DO...

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Take-home Quiz 8 HONOR CODE APPLIES – DO NOT TALK TO YOUR CLASSMATES Managerial Economics - Spring 08 Due Date: 4/19/08 1. Explain why monopoly is considered to be inefficient from societal point of view. Using some specific examples, explain the difference between monopoly and monopsony? Natural monopoly and pure monopoly? Why would a natural monopoly be preferred to pure monopoly? It is obvious that monopoly is considered to be inefficient from societal point of view. In fact, a loss in social welfare is caused because monopoly markets produce too little output at too high a price when compared with competitive markets. The benefits of monopoly are measured in terms of the economic profits that are possible when competition is reduced or eliminated. However, from a social perspective, there private benefits must be weighed against the costs borne by consumers in the forms of higher prices and reduced availability of desired products. Employees and suppliers are also suffer from the reduced employment opportunities linked with lower production in monopoly input markets. Moreover, formidable entry barriers, especially those that stem from government licenses, can shelter inefficient monopoly firms from the risk of losing market share to more efficient rivals. In competitive markets, high cost control and productive efficiency is a way of life. The tendency for monopoly firms to restrict output to increase process and earn economic profits gives rise to a deadweight loss from monopoly problem. Like any restriction on supply, the reduced levels of economic activity typical of monopoly markets makes a loss in social welfare due to the decline in mutually beneficial trade activity. Under monopoly, the value of consumer surplus is equal to the region under the market
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Takehome quiz 8 - Take-home Quiz 8 HONOR CODE APPLIES DO...

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