Technological Dependence - Monopoly - and Growth

Question: Discuss about the Technological Dependence, Monopoly, and Growth. Answer: Introduction In this study, the market scenario of the cafes of Rundle Street has mentioned. In this context, this study has highlighted several economical theories such as monopoly power, degree of monopoly. In this context, this study has discussed the short run profitability and the long run profitability of the cafes. The cost and the revenue of the cafes has also mentioned. On the other hand, this study is also helpful to identify the concept of excess capacity under the monopolistic competition. As per the case study, it can be observed that each of these cafes enjoys a degree of monopoly power, which is offset by a degree of competition as well. As per the statement of (), it can be stated that Rundle Street is the heart beat of Adelaide. It is also famous as the tourist spot of Adelaide. Therefore, it can be mentioned that each of the cafes and restaurants tried to maintain good quality in their foods, so that the tourists are willing to visit their store again. In this point, it can be stated that each of the cafes have their own monopoly power. In addition, it can be also stated that if each of the cafes and restaurants tried to maintain good quality or fulfill the customers requirement, then the monopoly power will be offset by the degree of competition. Askar (2013) added that competition is positively influenced by the production of the cafes and also on their distribution of products. On the other hand, it can be mentioned that degree of competition occurs when the products of one cafe differs from the quality or brand of the products of the other cafes. The owner of one cafe do not consider the impact of quality or prices on the other cafes. According to Bagdikian (2014), in case of monopolistic competition there are many producers as well as many tourists in the market. As a result, it can be mentioned that no cafes have the overall control on the market price. Moreover, it can be mentioned that the owners of the cafes have a degree of control over price. As a result, it can be mentioned that degree of competition refers that a number of sellers selling similar products, which are not identical. As a result, Clark (2012) put that the demand curve in this case will be elastic as the cafes are selling differentiated products, which are closely substitute to the others. In this connection, it can be highlighted that if the prices rise too high, then the consumers will willing to choose the products from the other cafes. As a result, the sales of the specific firm will be decreased. Furthermore, it can be stated that the marginal revenue will be lower compared to the price of the market. Figure 1: Short run equilibrium under monopoly (Source: Foster, 2014) The above figure depicted the situation of short run equilibrium when the monopoly power is offset by the degree of competition. Therefore, the cafes tried to maximize it's profitability and also produce the quantity, where the marginal revenue of cafes is equivalent to the marginal cost. The cafes of Rundle Street will be capable to collect the price depending upon the average revenue curve. Hawley (2015) mentioned that the average revenue of the cafes and the average cost will be multiplied by the selling of total amount and this will provide the overall profit. Figure 2: Long run equilibrium under monopoly (Source: Merhav, 2013) From the above table, it can be observed that the cafes of Rundle Street will still sale their products at a specific position. Hawley (2015) mentioned that where the marginal cost will be equal to the marginal revenue, the long run equilibrium will be occurred there. Nevertheless, it can be argued that the demand curve will be shifted if other more cafes enter into the market and increase the competition. As a result, it can be inferred that the cafes will not be able to sale their products above the average cost. Therefore, it can be inferred that the cafes will not be able to claim economic profit. As per the case study, it can be mentioned that excess capacity is related with the monopolistic competition in the long run. As opined that the differences in the long run occurs between the level of optimum output and the actual output level. Hence, it can be mentioned that demand for the products is lower and the cafes can efficiently supply the products to it's customers in the market. Urzua (2013) cited that excess capacity in the monopolistic competitive market give the equal demand and cost conditions. Therefore, the cafes will be able to expand their market share. With the concept of excess capacity, the cafes will offer the consumers a special order price. Therefore, the cafes can operate at the falling region of the long run average cost curve. Moreover, it can be mentioned that the cafes will not sell their products at the level where the average cost is minimum. Wang Chen (2012) opined that the quantity, by which the long run actual production of the cafes under the mono polistic competition declines and the volume can be measured by the excess capacity. Figure 3: Excess capacity under monopolistic competition (Source: Askar, 2013) Figure 4: Socially optimum output under perfect competition (Source: Clark, 2012) The above two figures can illustrates the concept of excess capacity under monopolistic competition. In the figure 3, it can be observed that the long run equilibrium level of output is associated with OM and here, marginal revenue is equivalent to the marginal cost and the price level is equal to the average cost. Conclusion After analyzing this study, it can be observed that this study has highlighted the concept of short run equilibrium and the long run equilibrium under the monopoly. In this case, the presence and the impact of degree of competition has discussed. After that, this study is also benefitted to identify the impact of excess capacity in monopolistic competitive market. References Askar, S. S. (2013). On complex dynamics of monopoly market. Economic Modelling, 31, 586-589. Bagdikian, B. H. (2014). The new media monopoly: A completely revised and updated edition with seven new chapters. Beacon Press. Clark, G. J. (2012). Monopoly power in defense of the status quo: a critique of the ABA's role in the regulation of the American legal profession. Suffolk University Law Review, 45, 1009. Foster, J. B. (2014). The theory of monopoly capitalism. NYU Press. Hawley, E. W. (2015). The New Deal and the problem of monopoly. Princeton University Press. Merhav, M. (2013). Technological dependence, monopoly, and growth. Elsevier. Urzua, C. M. (2013). Distributive and regional effects of monopoly power. Economa Mexicana Nueva poca, 22(2), 279-295. Wang, Q., Chen, X. (2012). China's electricity market-oriented reform: From an absolute to a relative monopoly. Energy Policy, 51, 143-148.