The Conventional Scope Of Economics - 2420 Words

Introduction The word monopoly originates from the Greek words ‘monos (single)’ and ‘polein (sell)’ (Wikipedia, 2014), thus, it means a market with only one seller. Being the sole producer a monopolist is alleviated from many constraints faced by traditional sellers. This paper will examine monopolies in through market pricing and strategies in the face of government regulations. It will examine Standard’s Oil monopoly in the US and the role of government regulation to break down the monopoly. It will also examine the recent use of anti-trust laws in China to examine the role of regulations on monopolists. Theoretical Review Classical economics is built on the metaphor of the invisible hand and principles of supply and demand.†¦show more content†¦Monopolists derive their demand curve from the average revenue which is the price they receive per unit. To choose a profit maximizing output level monopolists use marginal revenue which is the change in revenue per unit increase. Since monopolists are the only seller in the market they are not affected by a supply a curve but by their marginal costs. Monopolists maximize their profits by equating their marginal revenue to their marginal costs. The golden rule for pricing for a monopolist is to ensure the price is higher than the marginal costs, but by an amount that is inversely related to demand so as to offset the traditional rules. This golden rule helps in understanding why monopolies occur in certain sectors which are very inelastic. The next section will provide a brief overview of the Standard Oil Monopoly. Standard Oil-Overview In the real world it would be impossible to imagine a monopoly pertaining to anyone sector or industry, at best there can be influential firms. Standard Oil, however was the exception to that it is exemplary of the word monopoly. This section will provide a brief history of Standard Oil and the monopoly it had over US oil. The company was founded by John D. Rockefeller often dubbed as the wealthiest man in history in 1870, and within ten years he