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The rest is history

In the opening case, the East India Company and the Confederate States were presented as a monopoly or near monopoly provider of a good. Nearly every American schoolchild knows the result of the ‘unwelcome visit’ the ‘Mohawks’ bestowed upon Boston Harbor’s tea-bearing ships—the Boston Tea Party. Regarding the cotton industry, we also know Great Britain remained neutral during the Civil War, taking neither side during the conflict.

Did the monopoly nature of these business have unintended and historical consequences? Might the American Revolution have been deterred, if the East India Company had sailed the tea-bearing ships back to England? Might the southern states have made different decisions had they not been so confident “King Cotton” would force diplomatic recognition of the Confederate States of America? Of course, it is not possible to definitively answer these questions; after all we cannot roll back the clock and try a different scenario. We can, however, consider the monopoly nature of these businesses and the roles they played and hypothesize about what might have occurred under different circumstances.

Perhaps if there had been legal free tea trade, the colonists would have seen things differently; there was smuggled Dutch tea in the colonial market. If the colonists had been able to freely purchase Dutch tea, they would have paid lower prices and avoided the tax.

What about the cotton monopoly? With one in five jobs in Great Britain depending on Southern cotton and the Confederate States nearly the sole provider of that cotton, why did Great Britain remain neutral during the Civil War? At the beginning of the war, Britain simply drew down massive stores of cotton. These stockpiles lasted until near the end of 1862. Why did Britain not recognize the Confederacy at that point? Two reasons: The Emancipation Proclamation and new sources of cotton. Having outlawed slavery throughout the United Kingdom in 1833, it was politically impossible for Great Britain, empty cotton warehouses or not, to recognize, diplomatically, the Confederate States. In addition, during the two years it took to draw down the stockpiles, Britain expanded cotton imports from India, Egypt, and Brazil.

Monopoly sellers often see no threats to their superior marketplace position. In these examples did the power of the monopoly blind the decision makers to other possibilities? Perhaps. But, as they say, the rest is history.

Key concepts and summary

A monopolist is not a price taker, because when it decides what quantity to produce, it also determines the market price. For a monopolist, total revenue is relatively low at low quantities of output, because not much is being sold. Total revenue is also relatively low at very high quantities of output, because a very high quantity will sell only at a low price. Thus, total revenue for a monopolist will start low, rise, and then decline. The marginal revenue for a monopolist from selling additional units will decline. Each additional unit sold by a monopolist will push down the overall market price, and as more units are sold, this lower price applies to more and more units.

The monopolist will select the profit-maximizing level of output where MR = MC, and then charge the price for that quantity of output as determined by the market demand curve. If that price is above average cost, the monopolist earns positive profits.

Monopolists are not productively efficient, because they do not produce at the minimum of the average cost curve. Monopolists are not allocatively efficient, because they do not produce at the quantity where P = MC. As a result, monopolists produce less, at a higher average cost, and charge a higher price than would a combination of firms in a perfectly competitive industry. Monopolists also may lack incentives for innovation, because they need not fear entry.

Problems

Draw the demand curve, marginal revenue, and marginal cost curves from [link] , and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose demand for the monopoly’s product increases dramatically. Draw the new demand curve. What happens to the marginal revenue as a result of the increase in demand? What happens to the marginal cost curve? Identify the new profit-maximizing quantity and price. Does the answer make sense to you?

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Draw a monopolist’s demand curve, marginal revenue, and marginal cost curves. Identify the monopolist’s profit-maximizing output level. Now, think about a slightly higher level of output (say Q 0 + 1). According to the graph, is there any consumer willing to pay more than the marginal cost of that new level of output? If so, what does this mean?

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References

Aboukhadijeh, Feross. “Chapter 20: Girding for War - The North and the South, 1861-1865.” StudyNotes, Inc . Accessed July 7, 2013. http://www.apstudynotes.org/us-history/outlines/chapter-20-girding-for-war-the-north-and-the-south-1861-1865/.

British Parliament. “(28 August 1833). Slavery Abolition Act 1833; Section LXIV.” Accessed July 2013. http://www.pdavis.nl/Legis_07.htm.

Dattel, E. (nd). "Cotton and the Civil War." Mississippi Historical Society . Accessed July 2013. http://mshistorynow.mdah.state.ms.us/articles/291/cotton-and-the-civil-war.

Gartner. 2015. “Gartner Says Tablet Sales Continue to Be Slow in 2015.” Accessed March 12, 2015. http://www.gartner.com/newsroom/id/2954317.

Grogan, David. 2015. “Federal Judge Finds AmEx’s Anti-Steering Rule Violates Antitrust Law.” American Booksellers Association. Accessed March 12, 2015. http://www.bookweb.org/news/federal-judge-finds-amex%E2%80%99s-anti-steering-rule-violates-antitrust-law.

Massachusetts Historical Society. “The Coming of the American Revolution 1764-1776: The Boston Tea Party.” Retrieved from http://www.masshist.org/revolution/teaparty.php.

Massachusetts Historical Society. “Whereas our Nation.” The Massachusetts Gazette , p. 2. Accessed July 2013 http://www.masshist.org/revolution/image-viewer.php?old=1&item_id=457&img_step=1&nmask=1&mode=large.

Pelegrin, William. 2015. “Judge Overrules Antitrust Case Against Google , Says Setting Default Search Engines Is Fair.” Digital Trends. Accessed March 12, 2015. http://www.digitaltrends.com/mobile/judge-tosses-out-google-antitrust-lawsuit/.

Questions & Answers

can someone explain cardinal and ordinal utility for me please?
faith Reply
sir please explain industrial economist and its important
Priya
Please how can someone maximise profit in business?
Esther
how to calculate profit maximization
Daudi Reply
what is fiscal policy
Adewale Reply
it is the government policy in which uses expenditures and taxes to regurate the economy by applying either contractionary or expansionary FISCAL policy
Marcus
Hello. Please explain shortly
nourhan Reply
what happens when maximum price is placed above equilibrium price
Christian Reply
the demand curve falls
Ewerton
there will be excess supply
Emmanuel
explain the term : law of demand and it's function
Evacon Reply
law of demand state that the higher the price the lower the quantity demanded and vice versa
Moka
Está correto, sua função também é a de estabilizar o mercado do produto em questão, seu preço, sua produção, etc.
Ewerton
higher******
Umar
what are raw materials
Fatmah Reply
the basic material from which a product is made. "these could be used as raw material"
ADAMU
fatmah raw material, also known as a feedstock, oky is a basic material that is used to produce goods, finished products, energy, or intermediate materials that are feedstock for future finished products. just to make outputs.
ADAMU
oh yeah I got it .. thank you for your help 😊
Fatmah
hello my dear friends
Au
hello
Fatmah
hello
Muhammad
hy
Sortema
Any notes on ppf.?
George
can anyone clarify features of internal efficiency with reference to education
Sortema
raw material can also be said to be organic materials that haven't gone through any form of processing.
faith
in an open economy, the GDP is measured as ?
jacobs Reply
what is Labour of supply.
Eshmel Reply
it is called supply of labour
Emmanuel
it is the total number of those the producer is expected to employ at a given time and at an existing wage rate
Emmanuel
it is a sum number of employees the manufacturer wish to employ in a period of time , and at a given wage rate
Evacon
if the price of yam increases what will happen to demand curve?
Lawal Reply
the demand curve will decrease
Fatmah
with table and diagrametic illustration
Usama Reply
ok
Mustafe
if the price elasticity of demand for a commodity is zero the demand curve is
Aryan Reply
the demand curve is inelastic
Emmanuel
this is because price bring about a lesser change in quantity demanded
Emmanuel
how are we going to draw scale of preference
Achor Reply
how do we identify choice
Achor
how do we identify opportunity cost
Achor
opportunity cost is the forgone alternative. in oder words, it is the sacrificed goods or service for another. thus, the item you did not buy with the resources you have thereby buying another one is called opportunity cost. thanks
John
Opportunity cost considers only the next best alternative to an action, not the entire set of alternatives, and takes into account all of the differences between the two choices.
ADAMU
IAC curve is geueraly
Subham Reply
what are the benefits or tourism?
Maake Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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