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Monopoly, Technological change - Coggle Diagram
Monopoly
Characteristics
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High barriers to enter - such as high MES due to indivisibility; patents and intellectual property rights; high sun cost; vertical integration where a firm take control of one or more process or production; brand loyality
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High degree of product differentiation, hence no substitutes
Disadvantages
Lack of consumer choices - but too much choices can lead to choice overload which can lead to irrational decision making
Allcoatively inefficeint - firms take into account MPB rather than MSB, hence even when P=MPB, P>MSC. Or during the course of production, firms produce at P=MPC, but P<MSC. Externalities. but there are regulations in place on what monopolies can do and therefore consumer welfare is protected.they an be allcoatievly efficient if the market is contestable.
Productively inefficeint - higher average cost is passed onto consumers which reduces the affordability of goods and rationing out lower income groups - reduce consumer welfare - but market may be constable which encourage firms to minimise cost and prices to maintain their monopoly position. Also, productively inefficeint but if higher cost due to firms wanting to pay factory workers fair wages, then can be positive and consumers are willing to buy.
Eval: firms may try to increase brand loyalty and consume base and market share or to drive away competition by doing at the best of their ability which means growth and sales max. Hence often in reality firms charge lower prices than profit max price.
Monopoly means big firm which means divorce in ownership and management - can lead to inefficiency duet o communication error and resources not fully devoted to one thing.
Efficiencies
A monopoly is allocative inefficient. They produce at QPM rather than QAE. This leads to an increase in producer surplus and reduction in consumer surplus which cause dead-weight welfare loss. This is because they have monopoly power and therefore would raise the price to reduce consumer surplus.
A monopoly is productively inefficeint because they do not produce at the lowest point of the AC curve (because the marginal cost curve does not meet the AC. Can lead to higher prices for consumers. reducing consumer surplus
A monopoly can be dynamically efficient because they earn supernormal profit which signals that the return for investment is high and therefore provides incentive for them to invest into better products. But already have high barriers or entry so satisficing may be enough and no fear of competition and hence dynamically inefficient.
A monopoly is mostly inefficeint. X efficiency is the degree a firm can be efficient under imperfect competition.
Advantages
Dynamically efficient - better products for consumers and increase consumer surplus. But barriers to entry means monopoly lack incentives to invest, management in firms aiming for satisficing means they may not aim to max profit In long run and settle with some profit.
Ecoomies of scale - bigger firms with higher output can bargain for lower per unit cost for raw materials. Bigger output means firms can afford to hire management team which improves efficiency and communication and therefore reduce the average cost of production - but diseconomies of scale.
The advantages are limited due to inefficiencies but if the objective of the monopoly is in line with consumer welfare and growth, or charging a higher price due to better products, then this is good for society.
Technological change
What does it include
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Methodsof production - preindsutrialisation production occur in cottages compared to industrialisation which utilises steam engines and coal boilers. Then use of human aid machineries and now some production is complete automations and delivery is dome through robots programmed by computers.
Productive and dynamically efficient because technological change leads to production processes or better capita; (which substitutes labour) and lead to lower cost. Dynamically efficient when consumers can enjoy lower prices.
Changing the structure
Camera market. Kodak declared bankruptcy in 2013 due to it not evolving and innovating. Its income source is mainly from film paper selling but since the digital camera market has surged and grew since 2000, Kodak faced shape decline in sales. Technological change changes the camera market structure from monopoly, due to indivisibilities and sunk cost in producing chemical film, into a monopolistic competition due to much more competition as a result of lower entry barriers.
Technological change can lead to indivisibilities which occur when very large quantities of capital equipment are required to produce a unit of good. Jumbo jets is an example as Being and European Airbus consortium are the only two jumbo jet manufacturers, they are known as duopoly.
Creative destruction
Creative destruction is strongly related to the process in which technological change affect how businesses behave. Technological change allow shifts in production processes and innovations of better products which replace older ones. Creative destruction allow markets to become more productive as firms are incentivised to improve their production processes due to fear of being rationed out of the market by the fast-changing market structure and creative destruction. Consumers as a result enjoy lower prices and higher economic value from goods.
Apple has taken over the market share in mobile phone from Nokia since 2007. It takes only 3-6 years in that market for Nokia to be completely behind. Apple' creative destruction includes the innovation of new iPhones, iPad, and MacBook as long as its unique designs and features which only apple users can enjoy. It is always ahead of the market such that many firms doest seen the competition coming. HP has lose out in market share in computer as the popularity of MacBook rises. Microsoft suffered from people choosing MacBooks and the apple ecosystem over windows. Despite windows still having significance, as well as its Office suits of products, the apple ecosystem can soon take over as apple's innovation continues to grow.
Disruptive innovation is when technological change leads to opening of new market which replaces to old market. The established market does mot expect this change whilst consumers switch to the new market which eventually lower the prices in the established market. The established market can often run out of business.
Sustaining innovation - where there is an improvement in the existing market which improves the products within that market and results in firms being able to offer better values and compete with each other, sustaining improvements.