Principles of Microeconomics

Principles of Microeconomics

The competitive market maximizes the benefit of society at the equilibrium point. On that point the value that gives the buyer the last well (represented by the demand curve) equals the cost to the last seller (supply curve). In a monopoly, the equilibrium point (cut point of the curve of marginal revenue and marginal cost) the demand curve (representing the value for the buyer) is higher than the marginal cost curve (cost to the producer). The benefit to the buyer is greater than the cost to the producer, and then the benefit of society would increase if it improved the quantity supplied by the monopoly until the cutoff of the demand curve and the marginal cost curve (Goodwin, Nelson, et al, 2009). This monopoly is not interested because from the point of intersection of the curves of marginal revenue and marginal cost, additional increases in activity reduce their benefit.

In short, in monopoly, companies trying to maximize their own benefit are at an activity level below that which would maximize the overall benefit of society. This loss of benefit is just the cost to society the existence of a monopoly. Moreover, the price is fixed above a monopoly that would set a perfectly competitive market. In the competitive market price equals marginal cost, while in the monopoly market price (determined by the demand curve) is higher. This high price implies no less benefit to society as a whole, which does involve a transfer of benefits for buyers of monopoly. The social costs associated with moving monopoly governments to act to try to limit them (Goodwin, Nelson, et al, 2009).

Regulating the conditions under which they may act monopolies: for example fixing tariffs, requiring a level of quality of service, etc. The State is thus protecting the consumer.

Trying to break ...