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Help with Economics question?

Help with Economics question? Topic: economics homework help
June 26, 2019 / By Barzilai
Question: Hi all. I've got a homework question in economics that I need to answer, but I'm stumped about what it's asking or what I need to answer with. The question is: "What options face a government concerned about monopolistic power in an industry?" I'm suppose to give at least two examples of such situations but am having a difficult time understanding everything all together (economics is, unfortunately, not a strong subject for me). Can anybody help me out? I would much appreciate.
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Best Answers: Help with Economics question?

Zelma Zelma | 6 days ago
-Impose tax. There are at least 2 types of tax Gov. can use: a lump sum tax (e.g 100,000$ per year) or unit tax (15$ per unit). This way, Gov. can take off some excessive rent (profit) from the monopoly but doesn't change its behavior (produce little but charge high prices to maximize its profits in comparison to firms in competitive market) -Impose a ceiling price, forcing the monopoly not to charge more than a certain price. Again, this way Gov. can't change it behavior because it will find the optimum quantity of production at this price to max its profit --> still produce little in comparison to firms in competitive market - Open up the market. Gov. encourages other firms to enter the market to create competition to bring down the price and increase quantity in the whole market (either domestically or internationally e.g importing goods easily). However, in some markets, the fixed cost is so high; and market is so small that it may not be a good idea to have more than one producer (such as Boeing, the airplane producer). Depending which specific market it is, Gov. chooses the best action. I hope it helps a bit :)
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Zelma Originally Answered: Help with Economics question?
-Impose tax. There are at least 2 types of tax Gov. can use: a lump sum tax (e.g 100,000$ per year) or unit tax (15$ per unit). This way, Gov. can take off some excessive rent (profit) from the monopoly but doesn't change its behavior (produce little but charge high prices to maximize its profits in comparison to firms in competitive market) -Impose a ceiling price, forcing the monopoly not to charge more than a certain price. Again, this way Gov. can't change it behavior because it will find the optimum quantity of production at this price to max its profit --> still produce little in comparison to firms in competitive market - Open up the market. Gov. encourages other firms to enter the market to create competition to bring down the price and increase quantity in the whole market (either domestically or internationally e.g importing goods easily). However, in some markets, the fixed cost is so high; and market is so small that it may not be a good idea to have more than one producer (such as Boeing, the airplane producer). Depending which specific market it is, Gov. chooses the best action. I hope it helps a bit :)
Zelma Originally Answered: Help with Economics question?
You stated monopolistic, but from the context i will infer that you are referring to monopoly power and not monopolistic competition (which typically gives gov't little cause for concern). There are several options the government can take to mitigate the effects of monopoly or market power. That is there are a few things government can do to deal with monopolies that are setting prices artificially high (above their marginal cost) and underproducing (producing less than the amount that would have been produced had the industry been characterized by perfect competition). One way to deal with the monopoly is to order it dissolved into several oligopolies. This solution provides for increased competition, but there is still the ever-present danger that the oligopolies will collaborate, resulting in a situations where the market is effectively characterized by monopoly parameters despite the dissolving of the monopoly itself. There is also the risk that whatever economies of scale were realized due to the monopolies sheer size will be lost and output will actually decrease! Another option that can be taken is government price setting--that is, the government can set prices at a level that they consider "fair" by imposing a price level or by taking over the company.

Shelomith Shelomith
You stated monopolistic, but from the context i will infer that you are referring to monopoly power and not monopolistic competition (which typically gives gov't little cause for concern). There are several options the government can take to mitigate the effects of monopoly or market power. That is there are a few things government can do to deal with monopolies that are setting prices artificially high (above their marginal cost) and underproducing (producing less than the amount that would have been produced had the industry been characterized by perfect competition). One way to deal with the monopoly is to order it dissolved into several oligopolies. This solution provides for increased competition, but there is still the ever-present danger that the oligopolies will collaborate, resulting in a situations where the market is effectively characterized by monopoly parameters despite the dissolving of the monopoly itself. There is also the risk that whatever economies of scale were realized due to the monopolies sheer size will be lost and output will actually decrease! Another option that can be taken is government price setting--that is, the government can set prices at a level that they consider "fair" by imposing a price level or by taking over the company.
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Shelomith Originally Answered: Game theory terminology (Economics). One Definition question help?
the Prisoner's Dilemma game Game Theory is the name of the study of economics using formal games. Collusive outcomes happen when two actors are cooperating against other actors. A Nash equilibrium is a kind of solution to a game that makes every player unable to do better on their own.
Shelomith Originally Answered: Game theory terminology (Economics). One Definition question help?
For the best answers, search on this site https://shorturl.im/avqk5 I think it should be The Prisoner's Dilemma. The Prisoner's Dilemma suggests that firms will not cooperate and work together even if its beneficial to them. This is the only one here that results in inefficient outcome. Game theory is very general, and it explains collusive oligopolies. Collusive outcome is usually positive, otherwise firms won't collude. The Nash equilibrium is more of a positive one as well. Hope this helps.

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