MICROECONOMICS
MICROECONOMICS
11th Edition
ISBN: 9781266686764
Author: Colander
Publisher: MCG
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Chapter 15, Problem 1QAP
To determine

The ways in which monopolists use power to manipulate outcomes.

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What can a monopolist or a firm with market power do, in order to increase the profits?
A monopoly, unlike a perfectly competitive firm, has some market power. Thus, it can raise its price, within limits, without quantity demanded falling to zero. The main way monopolies retain their market power is through barriers to entry, which prevent other companies from entering monopolized markets and competing for customers. Consider the market for taxi services. In order to own and operate a taxi, drivers are required to obtain a taxi medallion. Which of the following best explains the barriers to entry that exist in this scenario? Increasing returns to scale Control over an important input O Legal barriers
Q1 In many countries, the government chooses to "internalize" the monopoly by owning monopoly providers of goods and services. Monopoly is one of the market structures in Malaysia. It is characterized by the ability of one seller to gain high profits. In a place where a monopoly operates, it is hard for other firms to start. An example of monopolies Malaysia GLCS are Telekom Malaysia, TNB and etc. (In some cases, these firms are "nationalized," and the government actually buys or confiscates firms that operate in monopoly markets). (a) Explain TWO (2) advantages and disadvantages of such an approach above to ensure that the "best interest of society" is promoted in these monopoly markets. (b) Economists however would prefer a private ownership of monopoly rather than a public ownership of monopoly.
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