...CHAPTER 10 MARKET POWER: MONOPOLY AND MONOPSONY R.KANAKARAJU 215112019 A.GOUTHAM SAI 215112020 B.R.PRADHEEP 215112027 M.PRABHAKAR 215112058 K.ADITHYA 215112063 NAGENDRA 215112069 MARKET POWERS: MONOPOLIST AND MANOPSONIST Markets comprises of products or services, buyers and sellers. Where as in a perfectly competitive market there will be a reasonably good number of buyers and sellers of the products or services. So the possibility of influencing the market by a single seller or buyer is nil. Depending upon the supply and demand prices will be determined. Market price and demand is the deciding factor of the companies to estimate how much to produce and sell, in consumers view it is a deciding factor how much to buy. In contrary to the case which was discussed above, if the market is not a perfectly competitive market then the situations of monopoly and monopsony arise. Monopoly market is the one which has only one seller but so many buyers. Monopsony market is the one which has only one buyer and so many sellers. Monopolist is the sole producer of a product, in market demand curve, price is determined by the quantity which is offered by the monopolist to sell, the quantity of produce sold by monopolist is low and the price is high, it happens because his products has full demand and he wants to take full advantage in this situation. Normally if the price is high, only a few buyers which have the potential to buy those...
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... ABSTRACT Economic theory introduces us to four different types of markets: perfect competition, monopolistic competition, oligopoly, and monopoly. Professional sports teams operate in an environment that is different than the typical business structure. The goal of this paper is to look at this industry, in particular the NFL, in an economics context and gain an understanding of the market structure of this unique industry. To do this I will discuss a brief history of the National Football League in the U.S. and how this organization is structured. I will also discuss typical market structures and type of market structure that professional sports may fit into. Further I will briefly discuss the economic concept of a monopsony and how sports leagues such as the NFL exhibit those characteristics. Market Structure and Professional Sports Teams Introduction Teams like the Carolina Panthers, New York Yankees or the L.A. Lakers are part of national leagues of professional team sports such as the NFL, MLB, and NBA. These professional sports teams operate in an environment that is different than the typical business structure. The National Football League is an economic juggernaut. As of 2011, it reportedly makes an estimated $6 billion per year in ticket sales, merchandising and contracts with television networks.[1] This paper will discuss the unique market structure of the National Football League (NFL). Brief History...
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...10.1 MONOPOLY A Rule of Thumb for Pricing Chapter 10: Market Power: Monopoly and Monopsony We want to translate the condition that marginal revenue should equal marginal cost into a rule of thumb that can be more easily applied in practice. To do this, we first write the expression for marginal revenue: Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e. 9 of 50 10.1 MONOPOLY A Rule of Thumb for Pricing Chapter 10: Market Power: Monopoly and Monopsony Note that the extra revenue from an incremental unit of quantity, ∆(PQ)/∆Q, has two components: 1. Producing one extra unit and selling it at price P brings in revenue (1)(P) = P. 2. But because the firm faces a downward-sloping demand curve, producing and selling this extra unit also results in a small drop in price ∆P/∆Q, which reduces the revenue from all units sold (i.e., a change in revenue Q[∆P/∆Q]). Thus, Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall • Microeconomics • Pindyck/Rubinfeld, 7e. 10 of 50 10.1 MONOPOLY A Rule of Thumb for Pricing Chapter 10: Market Power: Monopoly and Monopsony (Q/P)(∆P/∆Q) is the reciprocal of the elasticity of demand, 1/Ed, measured at the profit-maximizing output, and Now, because the firm’s objective is to maximize profit, we can set marginal revenue equal to marginal cost: which can be rearranged to give us (10.1) Equivalently, we can rearrange this equation to...
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...case of Tap Island In Tap Island, initially, the demand and supply of corn met the normal demand and supply curve, and farmers made profits depending on the season of corn availability. The Mega Company that comes in the market realizes that it would become the sole buyer of the corn should it venture into the business. Hence, there is minimal competition in the market with other buyers of the product in the market (Blair & Harrison, 2010). To maximize its profits, it proposes to increase its outputs, and it realizes that as long as its marginal cost of buying the corn is less than the marginal revenue it gets from selling processes corn, it would continue having an adequate supply of corn at its disposal. That is a typical case of a monopsony, a market structure that only a single buyer interacts with the sellers of a certain product of interest. In macroeconomics, that entity is said to have the power in the market for the terms to offer...
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...Economic Tools and Concepts Wesley Hill HCS/522 Health Care Economics University of Phoenix Introduction Current health care issues in the United States use economic tools and concepts to understand and explain how to improve quality and minimize cost. Although there are many issues facing health care, one area of focus is a nursing shortage in health care facilities. Three economic tools that will be focused on in this essay are choice and opportunity cost, supply and demand, and marginal analysis. Registered nurses (RN) are the largest group of health care professionals in the United States, strengthening the entire health care delivery system (Caron, 2004). It is important to understand the effects that a nursing shortage has on the economy and the health care system. Choice and Opportunity Cost Choice and opportunity costs are two of the most important concepts in economics. There is never an endless amount of resources, supplies, or even time so choices must be made on a daily basis. The choices that must be made in health care organizations are how to spend their limited income in the best way. The term best can be hard to define when dealing in terms of buying or spending. Health care organizations must consider what choice will give the most satisfaction or maximize gain. Wiseman explains opportunity costs as being, “…any good, including service, is the satisfaction or benefit foregone in not being able to use the resources involved to obtain some...
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...History has also revealed, in the early days of baseball integration, African American players were traditionally paid less than Caucasian players. For example, we can compare the salaries of two superstars of the era, Joe Dimaggio and Jackie Robinson. These two men had overlapping careers between the years of 1947 and 1951. By 1949, both men were established as consistently excellent players and were not immediately about to retire. In that year, Robinson made $21,000 dollars (Baseball Reference), while Dimaggio made $100,000 (Baseball Reference). This trend is not uncommon in baseball. Clear numbers are hard to find due to the private nature of baseball, but on average, African Americans were paid significantly less than white players (Swartz)....
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...which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is business entity that has significant market power, that is, the power, to charge high prices.[3] Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).[4] A monopoly is distinguished from a monophony, in which there is only one buyer of a product or service ; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations such that one or a few of the entities have market power and therefore interact with their customers (monopoly), suppliers (monopsony) and the other companies (oligopoly) in a game theoretic manner – meaning that expectations about their behavior affects other players' choice of strategy and vice versa. This is to be contrasted with the model of perfect competition in which companies are "price takers" and do not have market power.[citation needed] When not coerced legally to do otherwise, monopolies typically maximize their profit by producing fewer goods and selling them at...
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...Differeantiating Between Market Structures Identify the market structure in which this organization competes. Clearly indicate why the market structure was decided upon and how this market structure differentiates from the other alternatives. MARKET STRUCTURE The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market (“Market Structure”, 2016). There are four basic types of market structure: Perfect competition, oligopoly, monopoly, and monopsony. McDonald’s is one of the leading companies in the fast food industry (Internationally and in the U.S.). Although McDonald’s is leading the industry with a sizeable gap, other leading companies such as Wendy’s, Burger King, and KFC are taking market share as well. Due to all these companies, it would not be considered a monopoly. McDonald’s is considered an oligopoly. An oligopoly is where only a few firms dominate the entire market. Therefore, the market is highly concentrated. McDonald’s use a key component known as interdependence to rely on the actions of other businesses. McDonald’s does this so they can predict the movements of other businesses. By predicting their movements, McDonald’s is able to make a strategy to become and stay successful. Generally, no one firm will control the entire value...
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... Debate Are government controlled monopolies better than perfectly competitive markets? yes government controlled monopolies are better than perfectly competitive markets:- 1. The reason that governments tolerate monopolies is because they are also one themselves. They have ultimate monopolistic control and the legitimate use of power and force. Whether it’s criminal justice, police, military or mail almost all government agencies function as a monopoly. They also like to give out monopoly favor to some of their well connected friends. 2. Monopsony power. A firm with monopoly selling power may also be in a position to exploit monopsony buying power. For example, supermarkets may use their dominant market position to squeeze profit margins of farmers. source:- http://en.wikipedia.org/wiki/Government_monopoly no government controlled monopolies are not better than perfectly competitive markets:- 1. I think the formation of monopoly is very important , especially during the time of recession. They can push out infant firms and became internationally competitive. The fact that they have an EOS can reflect cheaper prices of their products. However they have to earn abnormal profits , therefore they have to minimize total costs , to do that they have to pay less to their employees. That is the only disadvantage. 2. A monopoly...
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...are given in brackets [ ]. ---------------------------------------------------------------------------------------------------------------- PART I (30 Marks) Answer all questions. Question 1 Answer briefly each of the following questions: (i) (ii) (iii) (iv) (v) (vi) (vii) State the Law of Demand. Mention two assumptions of the Law. What is meant by substitution effect? Define income elasticity of demand. With the help of a diagram, explain one exception to the Law of Supply. What is marginal physical product? How can marginal physical product be obtained from total physical product? With the help of a diagram, show how the equilibrium price and quantity change, when supply increases and demand remains unchanged. Define monopsony. Explain one feature of monopsony. [15 2] (viii) Differentiate between explicit cost and implicit cost. (ix) (x) (xi) (xii) What is meant by marginal efficiency of capital? Explain how bank rate can be used to control credit in an economy. How can private income be obtained from domestic income? Define fiscal policy. Mention the tools of fiscal policy. (xiii) What is meant by revenue deficit? (xiv) Differentiate between stock and supply. (xv) Explain the meaning of full employment in macro economics. 1 ISC Specimen Question Paper 2013 PART II (70 Marks) Answer any five questions. Question 2 (a) (b) Discuss any two exceptions to the Law of Demand. The quantity demanded of a commodity at a price of ₹ 10 per unit is 40 units. Its price elasticity of demand...
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...addition, more than 600 economists, seven of them Nobel Prize winners in economics, have signed onto a letter in help of increasing the minimum wage to $10.10 in the next two years. In 1994, Card and Krueger suggested that minimum wages may not necessarily decrease employment, but can actually increase it. It is hard to believe that a price floor may lead to an increase in quantity of labour employed in competitive labour markets. However, it is not so hard to believe, when discussion comes to oligopsony and monopolistic competition labour markets, where multiple employers compete with one another for workers, and when it comes to monopsony labour markets. Let’s compare labour market conditions under a monopsony and an oligopsony by having a look at Graph 2. Graph 2: Minimum Wages and Employment Under Oligopsony It is known that under a monopsony minimum wages can increase employment. Without a minimum wage, the market equilibrium wage and employment are wi and Li respectively. If minimum wage is applied, the marginal cost of labour becomes wm, employment reaches L'i and matches with the original marginal cost of the labour curve. Therefore, the employer maximises profits by employing L'i workers and employment rises by L'i - Li. However, under an oligopsony, effects of a minimum wage differ. As it is stated by Bashkar, Manning and To (2002), in particular, effects differ, if numerous employers compete for employees. The labour supply curve faced by firm i shifts to the left...
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...Differentiating Between Market Structures Don Peterson ECO/365 February 2, 2015 Elena Zee Differentiating Between Market Structures A market structure in economics describes the state of a market with respect to its competition. There exist several different market structures like perfect competition, oligopoly, and monopolies among others. These markets all produce different types of goods or services, like public and private goods as well as common and collective goods. Firms operating in these different market structures utilize the labor market in very different ways because of very diverse uses of labor in each market structure, so it is important for a firm to use the labor market equilibrium principles to their advantage to efficiently cover the costs of production and maximize profits. In economics, a good is something defined as any object, service or right that increases utility, directly or indirectly (Colander, 2013, Chapter 13). Goods are further broken down into public and private goods. A public good is a good that can be used simultaneously by many consumers, which is called non-rival, and people who have not paid for the good cannot be excluded from its utility, which in economics is call non-excludable (Moffatt, n.d.). Together this means that the consumption of a public good by an individual does not affect the availability of that good to anyone else, which is called being non-rival and non-excludable. It can be seen however, that a truly...
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...Economics Revision Chapter 1:Nature of work and leisure and trends in employment and earnings Earnings | Wages plus overtime pay, bonuses and commission | Economically inactive | Working age people who are neither in employment, nor unemployed, and so are not part of the labour force | Labour force participation rate | The proportion of working age people who are economically active | G8 | The group of major economies consisting of Canada, France, Germany, Italy, Japan, Russia, the UK and USA | Employment rate | The proportion of working age people who are in work | Part-time workers | People working less than 30 hours a week | Temporary work | Casual work, seasonal work, working for employment agencies, fixed – period contract work | Homeworking | Working either at home or in different places away from the central office, production or distribution facilities, using the home as a base | Teleworking | Working using a telephone and a computer at home, in an internet café or a train or plane | Occupational segregation | The dominance of an occupation by one gender | Primary sector | The first stage of production, agriculture | Secondary sector | The second stage of production, processing raw materials | Tertiary sector | The third stage of production, providing services | Tax wedge | The gap between what employers pay for labour & what workers receive in disposable income | Outsourcing | Subcontracting part of the production...
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...Being able to understand the underlying forces of competitors in an industry is an important factor for many different reasons. Primarily, it can help measure all the possibilities/opportunities for your firm, especially if you are going to compete as a new start-up firm. Also, it is a critical step because it helps you differentiate yourself better from others competing in the market with a similar set of products or services. Although the pure competition model is not a practical tool to assess an industry, Michael Porter’s Five Forces framework helps to truthfully measure all the potential profitability, risk and opportunity. With the help of these five forces, managers can develop and be in a strategic advantage compared to the other companies competing in the industry. The five forces framework: - Rivalry - Threat of entry/ Barriers to entry - Buyer Power - Supplier Power - Threat of substitutes Companies strive for a competitive advantage over their competitors. The amount of rivalry differs within every industry and these differences can be critical for developing a strategy. Concentrated industries usually present high levels of rivalry. Many companies are conscious about industry concentration and in order to measure it, they use the “concentration ratio” (CR). The CR which has been reported by SIC (Standard Industrial Classification code) shows the percentage of the market share seized by the top 4 companies in the industry. If the industry has a high concentration...
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...Exercises True‐False: Indicate whether each of the following statements is true (agrees with economic theory), false (contradicts economic theory) or is uncertain and explain your answer. 1. A firm earning zero economic profit is paying each factor’s owner the market value of that factor’s marginal product. 2. Input substitution increases the factor price elasticity of demand. 3. If individual workers substitute leisure for income at higher wage rates, the market supply curve of is negatively sloped. 4. Factor A is a major input in the production of commodity B. A price ceiling on A below its equilibrium price will increase the price of commodity B. 5. Industry A uses more capital per worker than does industry B. Therefore, wage rates in industry A must be higher than in industry B. 6. The marginal productivity theory of distribution implies that under universally competitive conditions, the distribution of income is fair. 7. Labor’s marginal revenue product curve in an imperfectly competitive factor market is a mutatis mutandis demand curve. 8. A competitive firm uses two inputs, labor (L) and capital (K). A decrease in the wage rate will lead to a reduction in the quantity of capital employed in the long run. 9. The ratio of wages in competitive occupation Ato wage rates in competitive occupation B is 2. After a payroll tax of 10% in both industries, the ratio of the equilibrium wage rates will increase. 10. Community A has a preferred set...
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