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Competition and Market Power
- Explain the difference between the demand curve facing a monopoly firm and the demand curve facing a perfectly competitive firm.
- Which of the following is (are) most likely to be produced under conditions resembling a monopoly: oil, automobiles, diamonds, electricity transmission, and eggs. Defend your answer in economic terms.
- Name one monopoly firm you deal with. What is the source of its monopoly power? Do you think it seeks to maximize its profits?
- This module focuses on four types of firms:
- perfectly competitive
- monopolistic competitive
Which of the above firms would most likely have zero economic profit in the long run? (It can be more than one type.) Explain.
Some firms have a large share of the market while others are just starting. A firm can often create a brand name which gives them market power. Market power is defined as the ability to raise prices without losing all demand. Since you are analyzing franchise firms, we can conclude that the brand name is somewhat established.
5. What type of market do you think your franchise operates? What type of competition does your firm face? Who are some competitors? (Even if you said your firm is a monopoly, think of some subsitutes.)
6. How do you think your firm can increase its market power?
The government often has two conflicting roles. It protects consumers by keeping prices fair and promotes a free market (entry of firms). Suppose your firm has a special patent. Do you think patent licenses should expire? Be sure to support your argument with references.
7. Cite sources