Monopolies and Monopolistic Competition

Monopolies and Monopolistic Competition

Monopolistic Inefficiencies

One of the inefficiencies that derive from a monopoly is allocative inefficiency. It refers to the situation when the consumer is not willing to pay an efficient price. If there were no monopoly, firms would possibly produce socially optimal quantities. However, monopoly power influences firms to produce less to charge high prices.

Besides, a monopoly is likely to lead to dynamic inefficiency. Dynamic inefficiency occurs when firms have no incentive to progress technologically. Such inefficiency leads to inferior products and limited options for consumers (Mankiw, 2020). When a firm enjoys a market monopoly, they are less likely to innovate than in a competitive market.

Monopolistic Competition Inefficiencies

Monopolistic competition has two sources of inefficiency. Firstly, there is the deadweight loss that results from monopolistic power. Here, the price charged is higher than the marginal cost of producing goods. The second is excess capacity. It shows that the equilibrium quantity is probably less than the lowest cost quantity. Unlike is the case in a competitive market, firms in a monopolistic competitive market choose to produce less than what is the minimum efficiency level (Mankiw, 2020).

The Profitability of Monopolies and Monopolistic Competitive Firms

A monopolistic firm maximizes its profits by equating marginal revenue with marginal cost. Henceforth, the firm solves the price of a product and the quantity produced to sustain a business. The case is no different with a firm in a monopolistic competitive market since profit is maximized based on equating marginal cost and marginal revenue. In short, determining the profitability of a monopoly and monopolistic competitive firm is the same; the difference only emerges in the long run.

Simulation Results

The simulation results show the differences between different market firms; monopolist, competitive monopolist, and competitive firm.

References

Mankiw, N. (2020). Principles Of Microeconomics: A Guided Tour (9th ed.). Cengage Learning.

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Monopolies and Monopolistic Competition

A monopoly is a firm that is the sole seller in a market. Monopolies can decide to set different prices for different consumers through price discrimination. In monopolistic competition, there are many firms that sell products that are similar but not identical.

First, play the simulation game Price Discrimination in the MindTap environment. In this discussion, you will share your experiences playing that game. Your work in this discussion will directly support your success on the course project.

In your initial post, include the image of your simulation report in your response. See the How to Submit a Simulation Report Image PDF document for more information. Then, address the following questions:

• Explain which types of market inefficiencies derive from monopolies. Use examples from the textbook to support your claims.
• Describe the types of inefficiencies that derive from monopolistic competition. Use examples from the textbook to support your claims.
• How are monopolies and monopolistic competitive firms profitable? Use examples from the textbook to support your analysis.