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What are the reasons for the existence of monopoly?

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9. (a) What are the reasons for the existence of monopoly? (b) Which of these did Alcoa use to establish and retain a monopoly?

Problem 1

If the market demand and supply functions for pizza in Newtown were:
QD = 12,000 - 1,000P
QS = -4,000 + 1,000P

Determine algebraically the equilibrium price and quantity of pizza.

** The tariff-inclusive price will be $3(1+.33) = $4. What are the impacts of tariff on domestic consumption, domestic production, imports, and government's tariff revenue?

8. The Halloran Specialty Food Company impost specialty foods from Europe and pays for imports in euros. The financial officer of the company notices that the dollar/euro exchange rate fluctuates continuously, sometimes even by several percentage points in the course of a few days. (a) What risk does the company face? (b) How can the company cover this risk?

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9. (a) What are the reasons for the existence of monopoly? (b) Which of these did Alcoa use to establish and retain a monopoly?

Reasons for existence of monopoly: There are several benefits of monopolies to the consumers. That's why we see so many monopolies still existing in the society.
• Monopolies provide incentives to innovate. As the monopolies enjoy the power they are more likely to innovate as all the benefits of innovation are enjoyed by the monopolies. In a competitive market, companies are reluctant to innovate as innovations by one firm are easily imitated by the other firms but at a very low cost. Thus, if a firm does not have a property rights to a new technology, etc. it would worry why create new technology.
• Monopolies being the only supplier in the market enjoy high volumes and therefore can easily enjoy the benefits of economies of the scale.
• Another benefit of monopoly is that it provides standardization. Since there is just one supplier, the supplies are standardized.
• The monopolies create incentives to ...

Solution Summary

This solution provides detailed explanations for the reasons monopoly exists.

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