Here you can read our FREE Guide on ECO 201 6-2 simulation discussion: monopolies and monopolistic competition, and see its solution.
Instructions of ECO 201 6-2 simulation discussion
Overview
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.
In your responses, comment on at least two posts from your peers by providing examples from the news of monopolies and firms in monopolistic competition markets. Compare and contrast the two types of markets.
To access your simulations, click the simulation link found in the module.
To complete this assignment, review the Module Six Simulation Discussion Rubric.
Step-By-Step Guide on ECO 201 6-2 simulation discussion: monopolies and monopolistic competition
Introduction to ECO 201 6-2 Simulation Discussion
This Owlisdom How-To Guide aims to help you delve into the complexities of monopolies and monopolistic competition, explicitly focusing on market inefficiencies and profitability. You can better understand these market structures and their economic impacts to solve ECO 201 6-2 simulation discussion: monopolies and monopolistic competition.
Explain which types of market inefficiencies derive from monopolies. Use examples from the textbook to support your claims.
Market Inefficiencies in Monopolies
To solve the ECO 201 6-2 simulation discussion, which is about monopolies and monopolistic competition, we will first play the simulation game given in the instructions and discuss the types of market insufficiencies.
- Identify critical characteristics of monopolies that lead to market inefficiencies, such as lack of competition and price setting above marginal cost.
- Discuss the concept of deadweight loss and how monopolies can result in reduced consumer surplus.
- Use textbook examples to illustrate these points, such as the dominance of a company like Facebook in social media.
Example
We have imperfect or monopolistic competition in monopolistic marketplaces when there are many suppliers but few replacements because of factors like price, quality, and availability. In the case of a monopoly game, one company disregards how its pricing actions impact its competitors and accepts the costs paid by other companies as given (Mankiw, 2021). Unlike totally competitive markets, monopolies do not lose their ability to replace themselves. Monopoly competition models are frequently used in industry models. Market structures that resemble monopolies include those found in restaurants, breakfast cereals, apparel, footwear, and the urban services sector. Monopolies will never grow inefficient since they are exempt from market competition from other producers. Take Facebook as an instance.
It is a monopoly as the dominant social media platform due to the fact that no other services are able to contend pretty. It may also lose its effectiveness due to the unavoidable deadweight loss. Due to the high cost and low production, this has happened. “Because a monopoly charges a price above marginal expense, not everyone who appreciates the commodity more than its cost buys it.”
Describe the types of inefficiencies that derive from monopolistic competition. Use examples from the textbook to support your claims.
Inefficiencies in Monopolistic Competition
Next, in ECO 201 6-2 simulation discussion: monopolies and monopolistic competition. We will discuss the inefficiencies that derive from monopolistic competition.
- Explain the structure of monopolistic competition, where many firms sell similar but not identical products.
- Discuss inefficiencies such as firms operating with excess capacity and setting prices above marginal cost.
- Use examples from sectors like restaurants or clothing where monopolistic competition is prevalent.
Monopolistic competition may be ineffective in one of two ways:
- A business will charge a price higher than its marginal cost if it is unable to produce units with a consumer value above the cost of production.
- Many enterprises do not utilise all of their production capacity because they have some extra capacity. As a result, in monopolistic competition, output is not equal to maximal power.
How are monopolies and monopolistic competitive firms profitable? Use examples from the textbook to support your analysis.
Profitability in Monopolistic Markets
For the last section of the ECO 201 6-2 simulation discussion on monopolies and monopolistic competition, we will discuss the profitability of a monopolistic market.
- Describe how both monopolies and monopolistic competitive firms aim to maximise profits.
- Discuss how these firms equate marginal revenue with marginal cost to determine the optimal output level.
- Highlight how the profitability of these firms changes in the short run versus the long run.
Example
“Monopolistically competitive markets do not have all the desirable welfare properties of perfectly competitive markets.”
Every customer will pay the same amount to buy a product from a monopoly. Goods should be sold in fewer quantities at a higher price. As with every monopoly, there is no rivalry. Customers only purchase a product if they judge its value as equal to its cost. Therefore, the monopoly’s output and sales could be more efficient relative to some benchmarks. Deadweight loss describes this phenomenon. Overcharging might cause the company to lose prospective customers. Similar to a monopoly, monopolistic competition seeks to maximise profits by increasing output until the firm’s marginal income and marginal costs are identical. The position of the maximising profits quantity on the average revenue curve will determine the optimal selling price for the product. There is no differentiation in pricing practices between businesses in the monopoly competition since firms have similar missing market power. Long-term demand is very elastic or responsive to changes in price. Profit in the economy is favourable in a short time but tends to reach zero over time.
In your responses, comment on at least two posts from your peers by providing examples from the news of monopolies and firms in monopolistic competition markets. Compare and contrast the two types of markets.
Peer Responses
Responding to peers is one of the vital parts of the ECO 201 6-2 simulation discussion: monopolies and monopolistic competition posts. We need to provide at least two peer responses. I will provide one example post. You can write your peer responses by keeping the below points in mind.
- Comment on at least two peer posts to engage with different viewpoints and analyses.
- Research and present real-world examples of monopolies and monopolistic competition firms, comparing their market behaviours and profitability.
Response 01
When there is a mismatch between supply and demand, the result is a deadweight loss and market inefficiency. When products in a market are overpriced or underpriced, the market is inefficient. Some people in society may reap benefits from the imbalance, but the change from equilibrium will harm others.
The Monopoly market structure is characterised by free entry and exit, a feature of competitors, and differentiation in products, a feature of monopolies (Mankiw, 2021). Due to the fact that each company’s products are distinct, they wield some market influence. The sloping demand curves of all products are the result of advertising and marketing emphasising their distinctive selling factors. Every business would be in perpetual competition with each other and, over time, would generate equivalent profits if admission were free. Until the economic profits of a monopolistic competitor reach zero, there will be entry.
Closing
Understanding monopolies and monopolistic competition is crucial for grasping broader economic concepts and their practical implications. Through this ECO 201 6-2 simulation discussion: monopolies and monopolistic competition assignment, you will explore how market structures influence business decisions and financial outcomes. Engaging with peers and analysing real-world examples will enrich your learning experience, providing a deeper insight into how these markets operate and evolve. You can also read our ECO 201 next module, Module 7 Simulation Discussion: Oligopolies.
References
Mankiw, N. G. (2021). Principles of Economics (9th edition). Cengage Learning, Inc.
Westfall, P. (2022, May 1). Microeconomics Definition, Uses, and Concepts. Investopedia. https://www.investopedia.com/terms/m/microeconomics.asp
