Answer to Question #210951 in Microeconomics for Momin ali

Question

i. Explain how a monopolist chooses the quantity of output to produce and price to 

charge. Give graphical representation.

ii. Describe the ways policymakers can respond to the inefficiencies caused by the 

monopolies.

Answer 1

i. Explain how a monopolist chooses the quantity of output to produce and price to 

charge. Give graphical representation

1. Monopolist companies or organizations always aim at increasing their profit margins by all means. For them to determine their profit-maximization tactics price and quality have to come in play, by analyzing the marginal revenue and marginal costs of the producing an extra unit. If the marginal revenue exceeds the marginal cost, then the firm should produce the extra unit. Monopolies would produce a good at a specific quality (q) where marginal revenues equals marginal cost. Then they will change the maximum price p(q) that market demand will respond to at that market demand will respond to at that quality.

ii. Describe the ways policymakers can respond to the inefficiencies caused by the 

monopolies

1. Policymakers can respond to the inefficiencies of monopoly behavior in:-

a. Make monopolized industries more competitive

• Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors.

b. Regulate the behavior the monopolies

• There are 3 major methods to increase the benefits of monopolies to society: removing or lowering barriers to entry through antitrust laws so that other firms can enter the market to compete; regulating the prices that the monopoly can charge; operating the monopoly as a public enterprise.

c. Make private monopolies into public enterprise

• Regulating of the the private monopolies in the market is a challenge for most of the countries and governments, since most monopolies get to challenge and set prices at their own peril. if the government can publicize the enterprises this will enable the government be in charge of regulating the prices and the quality of goods and or services that they offer.