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Chapter 9: Q27. (page 233)

For many years, the Justice Department has tried to break up large firms like IBM, Microsoft, and most recently Google, on the grounds that their large market share made them essentially monopolies. In a global

market, where U.S. firms compete with firms from other countries, would this policy make the same sense as it might in a purely domestic context?

Short Answer

Expert verified

In a worldwide market, it wouldn't appear to be legit to attempt to implement similar monopolistic regulation against firms like google, IBM, Microsoft. these organizations need to contend with numerous comparable firms at worldwide stage and expanded rivalry makes what is going on not the same as the homegrown syndication that organizations like google Microsoft appreciates.

Step by step solution

01

Content Introduction

IBM, Microsoft, Google are restraining infrastructures. They are cost creators. A monopolist is a cost creator. A value creator is the person who has overseen the stockpile of the item. A monopolist has full command over the stockpile of the ware.

02

Content Explanation

In this case, these companies have complete market power and even make economic profits. However, if they compete with firms from other countries, they will lose their monopoly power. Because the entry of new countries will increase competition, reducing these companies' ability to limit output and raise prices. As a result, economic profits will tend to fall.

As a result, they will not make the same sense in a global context.

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Most popular questions from this chapter

Draw a monopolist鈥檚 demand curve, marginal revenue, and marginal cost curves. Identify the monopolist鈥檚 profit-maximizing output level. Now, think about a slightly higher level of output (say Q0+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?

Imagine that you are managing a small firm and thinking about entering the market of a monopolist. The monopolist is currently charging a high price, and you have calculated that you can make a nice profit charging 10%less than the monopolist. Before you go ahead and challenge the monopolist, what possibility should you consider for how the monopolist might react?

How can a monopolist identify the profit-maximizing level of output if it knows its marginal revenue and marginal costs?

Draw the demand curve, marginal revenue, and marginal cost curves from Figure 9.6, and identify the quantity of output the monopoly wishes to supply and the price it will charge. Suppose the demand for the monopoly鈥檚 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?

Return to Figure 9.2. Suppose P0is \(10and P1is \)11. Suppose a new firm with the same LRAC curve as the incumbent tries to break into the market by selling 4,000units of output. Estimate from the graph what the new firm鈥檚 average cost of producing output would be. If the incumbent continues to produce 6,000units, how much output would the two firms supply to the market? Estimate what would happen to the market price as a result of the supply of both the incumbent firm and the new entrant. Approximately how much profit would each firm earn?
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