Monopoly is the sole producer in the market; its demand curve is the market demand. If a monopoly raises the price of its good, consumers buy less of it. Monopoly can alter the price of its good by adjusting the quantity it supplies to the market. In monopolized markets, price exceeds marginal cost; for a monopoly firm, P>MR=MC A monopoly firm charges a price above marginal cost compare to competitive firm. Policymakers in the government can respond to the monopoly problem by trying to make industries more competitive, regulating the behavior of monopolies, turning some private monopolies into public enterprises, or do nothing.
So output can expand and as long as less than full employment very little pressure for the price level to rise. This implies the economy is in a recession or depression and has excess capacity in production with large amounts of idle capital, labor and other resources. Thus if the economy increases output, price levels do not rise because there is so much unemployment and excess capacity already. Firms use idle resources and can increase output without driving the per-unit cost up and hence the price level. When the economy is operating beyond its full employment level of output then if the economy continues to expand there are no longer idle resources; that is all resources are being used since beyond full employment.
There is a failure to realise that long term better economic welfare also means general higher standards of living, as people have enough money to buy everything they need and some of what they want, competition is rife so drives quality up and prices down, and the government are able to take in more taxes from firms who are much healthier financially. This mass employment may lead to more jobs, but the workers themselves or the way they’re used is hugely inefficient. Another reason that labour production in the UK is so low is the lack of competition. There is a strong body of evidence that competition enhances productivity. So, with a lack of one there is a lack of the other.
WHY CAN’T WE MAKE MONEY IN AVIATION? Abstract The book “Why We Can’t Make Money in Aviation”, the author Adam Pilarski points out a large business problem, why are Airlines, always for the most part going into negative profitability constantly? The industry of Aviation, which is heavily subsidized, should be one that is able to keep itself afloat. If airline companies would charge a fair price, then they would turn a profit instead of cutthroat the other carrier just to get the customers business. If they would all band together, since there is only 3 major carriers now in the U.S., they could monopolize the industry and set their prices to be competitive and cost effective.
The higher wages paid by the employer have to be made up somewhere. In a free market, if an employer is producing a commodity, he will inevitably try to use the fewest possible dollars to make the highest quality products. This means that he will hire the best workers he can, for the lowest wages he can. This enables him to hire more workers, thus creating jobs and decreasing unemployment. It also ensures that he can put a high quality product on the market at a relatively low price.
It depends on the industry barriers to entry. If the potential entrance is high, it may lead to increase the degree of industry competition. The industry attractiveness therefore is less due to low profitability (Tutor2u, n.d.). There are number factors of barrier to entry however the key barriers to entry can include: * Economics of scale * Production differentiation * Capital requirements * Customer switching costs * Access to industry distribution channels * Government policies (eNote, 2012) a. Economic scale: European airline industry has achieved economic scale in which it creates a barrier of entry that the new entrants have to compete on a large scale (eNote, 2012).
Household survey and national accounts data mostly ref lect basic consumption, and therefore overstate the risk aversion necessary to match the observed equity premium. The risk aversion implied by the consumption of luxury goods is more than an order of magnitude less than that implied by national accounts data. For the very rich, the equity premium is much less of a puzzle. AS DEMONSTRATED BY GROSSMAN AND SHILLER (1981), SHILLER (1982), Mehra and Prescott (1985), and the extensive literature that follows, the risk of the stock market as measured by its co-movement with aggregate consumption is insufficient to justify the extent to which its average return exceeds the return on short-term government debt. We propose a partial resolution to this equity premium puzzle by distinguishing between the consumption of basic goods and that of luxury goods.
Profit maximisation occurs when a firm produces at the point where marginal cost equal marginal revenue (MC=MR). This is the point of profit maximisation as any unit produced after this point will have a greater marginal cost than marginal revenue therefore the marginal revenue being gained from the extra unit will decrease total revenue rather than increase it, thus causing profits to decrease. A reason why a firm may want to profit maximise is that it keeps shareholder happy as they receive a greater share of dividends and also if a firm has profits they can reinvest these profits into research and development (dynamic efficiency). There are many different objectives a firm could have other than profit maximisation. The knowledge of a firm finding out where marginal costs equal marginal revenue is very difficult so some firms may not be able to profit maximise as they do not have the correct knowledge required to do so.
Subsidies and price supports have existed for centuries, but now they are incredibly wasteful and completely outmoded for world markets. Subsidies, fostering the protection of domestic industries have a negative effect on employment, the budget deficit, and other economic aspect. The economic implications of subsidies are significant. Government subsidies given to the private industry usually end up hurting the economy. A subsidy sponsors unprofitable business enterprises and often favors one firm over another.
Another argument which theoretically explains the underperformance could be that Industrial foundation get the majority ownership of companies, there is a limit to diversification ownership. According to Fama and Jensen in 1985, industrial foundations bear risk which is not correlate to the market, that is to say the idiosyncratic risk. This has the consequence that foundations will make probably more risk adverse compared to investor owned companies with other type of ownership and would be less profitable. unconcentredrisk***** Moreover, a disadvantage which could be also relevant is the situation where the foundation is short of funds and reticent to give up control of the firm. In this situation foundation owned companies could be capital rationed.10 As a consequence, they could make more short term decisions than other types of companies and being less efficient and less profitable on long term.