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ClassOf1 Monopoly Market Power

ClassOf1 Monopoly Market Power

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A descriptive analysis of the concept and relevance of market power with a special focus on the features of a monopoly market structure and an emphasis on transportation costs.
A descriptive analysis of the concept and relevance of market power with a special focus on the features of a monopoly market structure and an emphasis on transportation costs.

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Published by: ClassOf1.com on Sep 11, 2009
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07/14/2011

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ClassOf1provides exert guidance for College, Graduate and High schoolhomework and liveonline  tutoring on subjects likeFinance, Marketing,Statistics,Economicsand others. Check out more solved   problems in our Solution Library .
 
Sub: Economics Topic: Micro Economics
Question:
A descriptive analysis of the concept and relevance of market power with a special focus on the features of amonopoly market structure and an emphasis ontransportation costs.
"Examine the regulation of market power and social costs of transportation." The key topics to research about would be competition, concentration andmarket power transportation. I AM so sorry I really need help here I have tobe ok in this class even though it does not have to do any with my work andit has to be APA style
Arial
12 double space and please include all references.
Solution:
Regulation of market power and social costs of transportation
Economists assume that there are a number of different buyers and sellers inthe marketplace. This means that we have competition in the market, whichallows price to change in response to changes in supply and demand.Furthermore, for almost every product there are substitutes, so if oneproduct becomes too expensive, a buyer can choose a cheaper substituteinstead. In a market with many buyers and sellers, both the consumer andthe supplier have equal ability to influence price.In some industries, there are no substitutes and there is no competition. In amarket that has only one or few suppliers of a good or service, theproducer(s) can control price, meaning that a consumer does not havechoice, cannot maximize his or her total utility and has very little influence
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 The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not forsubmitting the same inlieu of your academic submissions for grades.
 
Sub: Economics Topic: Micro Economics
over the price of goods.A monopoly is a market structure in which there is only one producer/sellerfor a product. In other words, the single business
is
the industry. Entry intosuch a market is restricted due to high costs or other impediments, whichmay be economic, social or political. For instance, a government can create amonopoly over an industry that it wants to control, such as electricity.Another reason for the barriers against entry into a monopolisticindustry is that oftentimes, one entity has the exclusive rights to a naturalresource. For example, in Saudi Arabia the government has sole control overthe oil industry. A monopoly may also form when a company has a copyrightor patent that prevents others from entering the market.In an oligopoly, there are only a few firms that make up an industry. Thisselect group of firms has control over the price and, like a monopoly; anoligopoly has high barriers to entry. The products that the oligopolistic firmsproduce are often nearly identical and, therefore, the companies, which arecompeting for market share, are interdependent as a result of market forces.Assume, for example, that an economy needs only 100 widgets. Company Xproduces 50 widgets and its competitor, Company Y, produces the other 50. The prices of the two brands will be interdependent and, therefore, similar.So, if Company X starts selling the widgets at a lower price, it will get agreater market share, thereby forcing Company Y to lower its prices as well.
Concept of Market Power:
In general, Economists define “Market Power” as the ability of a firm or groupof firm with in a market to profitability charge prices above the competitionlevel for sustained period of time. Although any firm can raise its price, notevery firm can profitability do so. As a result, a distinguishing characteristicof a firm or group of firms with market power is that their prices can beraised without the firms or group of firms losing so many sales that the priceincrease is unprofitable. If there are close substitutes or others could easilybegin producing close substitutes, a firm will not profit from a price increaseand then by the definition does have market power.
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 The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not forsubmitting the same inlieu of your academic submissions for grades.
 
Sub: Economics Topic: Micro Economics
 The economic concept of market power is central to the legal analysis of most anti trust cases. Like economists, court have used the term marketpower to describe situations in which a firm or group of firms have controlover price and output. For example, in Jefferson Parish Hospital District No.2v. Hyde, the Supreme Court wrote; “Market Power exists whenever pricescan be raised above the levels that would be charged in a competitivemarket”.Factors frequently considered in determining whether a firm has marketpower include: Market Share, Barriers to Market Entry, Pricing Behavior,Profitability and Vertical Integration. Market share can be measured inseveral ways, including monetary value, units of sales, units of productionand production capacity. Market share alone can be an inaccurate measureof market power. However, it is unlikely that a firm without significantmarket share will have sufficient market power to behave anti-competitivelyon its own. Therefore, market share is usually a starting point in determiningmarket power.
Monopoly Power and Market power :
Monopoly power is an example of market failure which occurs when one ormore of the participants have the ability to influence the price or otheroutcomes in some general or specialized market. The most commonlydiscussed form of market power is that of a monopoly, but other forms suchas monophony, and more moderate versions of these two extremes, exist.Markets participants that have market power are sometimes referred to as"price makers", while those without are sometimes called "price takers".As long as new firms are free to enter a market, they will drive downeconomic profits. Yet in many markets, firms continue to enjoy largeeconomic profits year after year. Something must be preventing eager newfirms from entering these markets. New firms can be prevented fromentering product markets by barriers to entry. Barriers to entry areadvantages that existing firms have over new firms wishing to enter amarket. Assessment of barriers to entry is also important. The extent to
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 The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not forsubmitting the same inlieu of your academic submissions for grades.

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