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101-684: Portuguese trade with India had been a crown monopoly since the Portuguese captain Vasco da Gama opened the sea route to India in 1497–1499. The monopoly had been managed by the Casa da Índia , the royal trading house founded around 1500, it is a first to start a joint stock company to trade in india. The Casa was responsible for the yearly India armadas . However, by 1560, the Casa's finances were in dire straits and in 1570, King Sebastian of Portugal issued

202-444: A state-owned company . Monopolies may be naturally occurring due to limited competition because the industry is resource intensive and requires substantial costs to operate (e.g., certain railroad systems). Market structure is determined by following factors: In economics, the idea of monopolies is important in the study of management structures, which directly concerns normative aspects of economic competition, and provides

303-405: A " de jure monopoly") is a form of coercive monopoly , in which a government grants exclusive privilege to a private individual or company to be the sole provider of a commodity. Monopoly may be granted explicitly, as when potential competitors are excluded from the market by a specific law , or implicitly, such as when the requirements of an administrative regulation can only be fulfilled by

404-434: A New Christian included restrictions of civil and political rights , abuses of those already-limited civil rights, social and sometimes legal restrictions on whom one could marry ( anti-miscegenation laws ), social restrictions on where one could live, legal restrictions of entry into the professions and the clergy, legal restrictions and prohibition of immigration to and settlement in the newly colonized Spanish territories in

505-509: A PC market are price takers. The price is set by the interaction of demand and supply at the market or aggregate level. Individual companies simply take the price determined by the market and produce that quantity of output that maximizes the company's profits. If a PC company attempted to increase prices above the market level all its customers would abandon the company and purchase at the market price from other companies. A monopoly has considerable although not unlimited market power. A monopoly has

606-739: A boarding pass before boarding an airplane. Most travelers assume that this practice is strictly a matter of security. However, a primary purpose in requesting photographic identification is to confirm that the ticket purchaser is the person about to board the airplane and not someone who has repurchased the ticket from a discount buyer. The inability to prevent resale is the largest obstacle to successful price discrimination. Companies have, however, developed numerous methods to prevent resale. For example, universities require that students show identification before entering sporting events. Governments may make it illegal to resell tickets or products. In Boston, Red Sox baseball tickets can only be resold legally to

707-598: A company cannot charge more than the market price. Any market structure characterized by a downward sloping demand curve has market power – monopoly, monopolistic competition and oligopoly. The only market structure that has no market power is perfect competition. A company wishing to practice price discrimination must be able to prevent middlemen or brokers from acquiring the consumer surplus for themselves. The company accomplishes this by preventing or limiting resale. Many methods are used to prevent resale. For instance, persons are required to show photographic identification and

808-426: A consumer's tax return has information that can be used to charge customers based on an estimate of their ability to pay. In second degree price discrimination or quantity discrimination customers are charged different prices based on how much they buy. There is a single price schedule for all consumers but the prices vary depending on the quantity of the good bought. The theory of second degree price discrimination

909-438: A consumer's willingness to pay is rarely available. Sellers tend to rely on secondary information such as where a person lives (postal codes); for example, catalog retailers can use mail high-priced catalogs to high-income postal codes. First degree price discrimination most frequently occurs in regard to professional services or in transactions involving direct buyer-seller negotiations. For example, an accountant who has prepared

1010-549: A customer's willingness to buy a good is difficult. Asking consumers directly is fruitless: consumers do not know, and to the extent they do they are reluctant to share that information with marketers. The two main methods for determining willingness to buy are observation of personal characteristics and consumer actions. As noted information about where a person lives (postal codes), how the person dresses, what kind of car he or she drives, occupation, and income and spending patterns can be helpful in classifying. The price of monopoly

1111-457: A decree opening up trade to India to any private Portuguese national. As few took up the offer, the free trade decree was replaced in 1578 by a new system of annual monopolies, where the Casa sold India trading contracts to a private Portuguese merchant consortium, granting them a monopoly for one year. This annual contract system was abandoned in 1597, and the royal monopoly resumed. The Iberian Union of 1580, which gave King Philip II of Spain

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1212-492: A different price. Third degree price discrimination is the most prevalent type. There are three conditions that must be present for a company to engage in successful price discrimination. First, the company must have market power. Second, the company must be able to sort customers according to their willingness to pay for the good. Third, the firm must be able to prevent resell. A company must have some degree of market power to practice price discrimination. Without market power

1313-409: A high rate of return or monopoly prices and might represent risk premiums . Monopolies derive their market power from barriers to entry – circumstances that prevent or greatly impede a potential competitor's ability to compete in a market. There are three major types of barriers to entry: economic, legal, and deliberate. In addition to barriers to entry and competition, barriers to exit may be

1414-433: A higher price than P ∗ {\displaystyle P^{*}} and those who will not pay P ∗ {\displaystyle P^{*}} but would buy at a lower price. A price discrimination strategy is to charge less price sensitive buyers a higher price and the more price sensitive buyers a lower price. Thus additional revenue is generated from two sources. The basic problem

1515-515: A market and what does not are relevant distinctions to make in economic analysis. In a general equilibrium context, a good is a specific concept including geographical and time-related characteristics. Most studies of market structure relax a little their definition of a good, allowing for more flexibility in the identification of substitute goods. A monopoly has at least one of these five characteristics: Market power can be estimated with Lerner index . High profit margins might not correspond to

1616-416: A maximum value then continuously decreases until total revenue is again zero. Total revenue has its maximum value when the slope of the total revenue function is zero. The slope of the total revenue function is marginal revenue. So the revenue maximizing quantity and price occur when MR = 0 {\displaystyle {\text{MR}}=0} . For example, assume that the monopoly's demand function

1717-473: A monopolist to increase its profit by charging higher prices for identical goods to those who are willing or able to pay more. For example, most economic textbooks cost more in the United States than in developing countries like Ethiopia . In this case, the publisher is using its government-granted copyright monopoly to price discriminate between the generally wealthier American economics students and

1818-430: A monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices, which is associated with unfair price raises . Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market). A monopoly may also have monopsony control of

1919-454: A monopoly is that the monopoly has a downward-sloping demand curve rather than the "perceived" perfectly elastic curve of the PC company. Practically all the variations mentioned above relate to this fact. If there is a downward-sloping demand curve then by necessity there is a distinct marginal revenue curve. The implications of this fact are best made manifest with a linear demand curve. Assume that

2020-509: A monopoly. Often, a natural monopoly is the outcome of an initial rivalry between several competitors. An early market entrant that takes advantage of the cost structure and can expand rapidly can exclude smaller companies from entering and can drive or buy out other companies. A natural monopoly suffers from the same inefficiencies as any other monopoly. Left to its own devices, a profit-seeking natural monopoly will produce where marginal revenue equals marginal costs. Regulation of natural monopolies

2121-650: A more derogatory fashion Marranos ), while the Muslim converts were called Moriscos . Because these conversions were achieved in part through coercion and also with the threat of expulsion, especially when it came to the Jews, the Catholic Inquisition and Iberian monarchs suspected a number of the "New Christians" of being crypto-Jews . Subsequently, the Spanish Inquisition and then

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2222-447: A more elastic demand for movies than do young adults because they generally have more free time. Thus theaters will offer discount tickets to seniors. Assume that by a uniform pricing system the monopolist would sell five units at a price of $ 10 per unit. Assume that his marginal cost is $ 5 per unit. Total revenue would be $ 50, total costs would be $ 25 and profits would be $ 25. If the monopolist practiced price discrimination he would sell

2323-496: A more price inelastic demand and a relatively lesser price to the group with a more elastic demand. Examples of third degree price discrimination abound. Airlines charge higher prices to business travelers than to vacation travelers. The reasoning is that the demand curve for a vacation traveler is relatively elastic while the demand curve for a business traveler is relatively inelastic. Any determinant of price elasticity of demand can be used to segment markets. For example, seniors have

2424-421: A perfectly elastic demand curve meaning that total revenue is proportional to output. Thus the total revenue curve for a competitive company is a ray with a slope equal to the market price. A competitive company can sell all the output it desires at the market price. For a monopoly to increase sales it must reduce price. Thus the total revenue curve for a monopoly is a parabola that begins at the origin and reaches

2525-477: A price increase, price elasticity tends to increase, and in the optimum case above it will be greater than one for most customers. A company maximizes profit by selling where marginal revenue equals marginal cost. A company that does not engage in price discrimination will charge the profit maximizing price, P ∗ {\displaystyle P^{*}} , to all its customers. In such circumstances there are customers who would be willing to pay

2626-684: A private joint-stock company could raise more capital, revive the Asian trade and compete more efficiently with the Anglo-Dutch in the Indian Ocean . King Philip III of Portugal put the idea in motion in 1624 and appointed D. Jorge Mascarenhas, mayor of Lisbon and member of the Council of State, to head a committee to implement Solis proposal. Despite being supported by Olivares , the proposal faced much skepticism and opposition, particularly by

2727-680: A result of pogroms in 1391 . Those remaining practicing Jews were expelled by the Catholic monarchs Ferdinand and Isabella in the Alhambra Decree in 1492, following the Catholic Reconquest of Spain. As a result of the Alhambra Decree and persecution in prior years, over 200,000 Jews converted to Catholicism and between 40,000 and 100,000 were expelled. Following the Catholic Reconquest of Spain, 200,000 of

2828-487: A sector of a market. A monopsony is a market situation in which there is only one buyer. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations in which one or a few entities have market power and therefore interact with their customers (monopoly or oligopoly), or suppliers (monopsony) in ways that distort

2929-669: A similar Portuguese decree in 1497, the remaining Jewish population in Iberia became officially Christian by default. The New Christians, especially those of Jewish origin, were always under suspicion of being judaizantes ("judaizers"); that is, apostatizing from the Christian religion and being active crypto-Jews . Despite the discrimination and legal restrictions, many Jewish-origin New Christians found ways of circumventing these restrictions for emigration and settlement in

3030-424: A single agent or entrepreneur, the optimal decision is to equate the marginal cost and marginal revenue of production. Nonetheless, a pure monopoly can – unlike a competitive company – alter the market price for its own convenience: a decrease of production results in a higher price. In the economics' jargon, it is said that pure monopolies have "a downward-sloping demand". An important consequence of such behaviour

3131-541: A single market player, or through some other legal or procedural mechanism, such as patents , trademarks , and copyright . These monopolies can also be the result of "rent-seeking" behavior, where firms will try to get the prize of having a monopoly, and the increase of profits in acquiring one from a competitive market in their sector. New Christians New Christian ( Latin : Novus Christianus ; Spanish : Cristiano Nuevo ; Portuguese : Cristão-Novo ; Catalan : Cristià Nou ; Ladino : Kristiano muevo )

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3232-482: A source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. High liquidation costs are a primary barrier to exiting. Market exit and shutdown are sometimes separate events. The decision of whether to shut down or operate is not affected by exit barriers. A company will shut down if the price falls below minimum average variable costs. While monopoly and perfect competition represent

3333-402: A substitute. Contrary to common misconception , monopolists do not try to sell items for the highest possible price, nor do they try to maximize profit per unit, but rather they try to maximize total profit. A natural monopoly is an organization that experiences increasing returns to scale over the relevant range of output and relatively high fixed costs. A natural monopoly occurs where

3434-406: Is P = 50 − 2 Q {\displaystyle P=50-2Q} . The total revenue function would be TR = 50 Q − 2 Q 2 {\displaystyle {\text{TR}}=50Q-2Q^{2}} and marginal revenue would be 50 − 4 Q {\displaystyle 50-4Q} . Setting marginal revenue equal to zero we have So

3535-502: Is a consumer is willing to buy only a certain quantity of a good at a given price. Companies know that consumer's willingness to buy decreases as more units are purchased. The task for the seller is to identify these price points and to reduce the price once one is reached in the hope that a reduced price will trigger additional purchases from the consumer. For example, sell in unit blocks rather than individual units. In third degree price discrimination or multi-market price discrimination

3636-400: Is a theoretical construct, advances in information technology and micromarketing may bring it closer to the realm of possibility. Partial price discrimination can cause some customers who are inappropriately pooled with high price customers to be excluded from the market. For example, a poor student in the U.S. might be excluded from purchasing an economics textbook at the U.S. price, which

3737-401: Is characterized by a lack of economic competition to produce a particular thing, a lack of viable substitute goods , and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit . The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics,

3838-681: Is defined by the total gains from trade, the monopoly setting is less efficient than perfect competition. It is often argued that monopolies tend to become less efficient and less innovative over time, becoming "complacent", because they do not have to be efficient or innovative to compete in the marketplace. Sometimes this very loss of psychological efficiency can increase a potential competitor's value enough to overcome market entry barriers, or provide incentive for research and investment into new alternatives. The theory of contestable markets argues that in some circumstances (private) monopolies are forced to behave as if there were competition because of

3939-422: Is dominant. A government-granted monopoly or legal monopoly , by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group . Patents , copyrights , and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly , for example with

4040-417: Is important information for one to remember when considering the monopoly model diagram (and its associated conclusions) displayed here. The result that monopoly prices are higher, and production output lesser, than a competitive company follow from a requirement that the monopoly not charge different prices for different customers. That is, the monopoly is restricted from engaging in price discrimination (this

4141-401: Is known as the "revolution in monopoly theory". A monopolist can extract only one premium, and getting into complementary markets does not pay. That is, the total profits a monopolist could earn if it sought to leverage its monopoly in one market by monopolizing a complementary market are equal to the extra profits it could earn anyway by charging more for the monopoly product itself. However,

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4242-400: Is not perfect. Regulators must estimate average costs. Companies have a reduced incentive to lower costs. Regulation of this type has not been limited to natural monopolies. Average-cost pricing does also have some disadvantages. By setting price equal to the intersection of the demand curve and the average total cost curve, the firm's output is allocatively inefficient as the price is less than

4343-400: Is problematic. Fragmenting such monopolies is by definition inefficient. The most frequently used methods dealing with natural monopolies are government regulations and public ownership. Government regulation generally consists of regulatory commissions charged with the principal duty of setting prices. Natural monopolies are synonymous with what is called "single-unit enterprise", a term which

4444-448: Is termed first degree price discrimination , such that all customers are charged the same amount). If the monopoly were permitted to charge individualised prices (this is termed third degree price discrimination ), the quantity produced, and the price charged to the marginal customer, would be identical to that of a competitive company, thus eliminating the deadweight loss ; however, all gains from trade (social welfare) would accrue to

4545-621: Is that typically a monopoly selects a higher price and lesser quantity of output than a price-taking company; again, less is available at a higher price. A monopoly chooses that price that maximizes the difference between total revenue and total cost. The basic markup rule (as measured by the Lerner index ) can be expressed as P − M C P = − 1 E d {\displaystyle {\frac {P-MC}{P}}={\frac {-1}{E_{d}}}} , where E d {\displaystyle E_{d}}

4646-560: Is the only market form in which price discrimination would be impossible (a perfectly competitive company has a perfectly elastic demand curve and has no market power). There are three forms of price discrimination. First degree price discrimination charges each consumer the maximum price the consumer is willing to pay. Second degree price discrimination involves quantity discounts. Third degree price discrimination involves grouping consumers according to willingness to pay as measured by their price elasticities of demand and charging each group

4747-535: Is the price elasticity of demand the firm faces. The markup rules indicate that the ratio between profit margin and the price is inversely proportional to the price elasticity of demand. The implication of the rule is that the more elastic the demand for the product the less pricing power the monopoly has. Market power is the ability to increase the product's price above marginal cost without losing all customers. Perfectly competitive (PC) companies have zero market power when it comes to setting prices. All companies of

4848-517: Is to identify customers by their willingness to pay. The purpose of price discrimination is to transfer consumer surplus to the producer. Consumer surplus is the difference between the value of a good to a consumer and the price the consumer must pay in the market to purchase it. Price discrimination is not limited to monopolies. Market power is a company's ability to increase prices without losing all its customers. Any company that has market power can engage in price discrimination. Perfect competition

4949-441: Is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion indeed, but for any considerable time together. The one is upon every occasion the highest which can be squeezed out of the buyers, or which it is supposed they will consent to give; the other is the lowest which the sellers can commonly afford to take, and at

5050-701: The Alhambra Decree of 1492. The Alhambra Decree, also known as the Edict of Expulsion, was an anti-Jewish law made by the Catholic Monarchs upon the Reconquista of the Iberian Peninsula . It required Jews to convert to Roman Catholicism or be expelled from Spain . Most of the history of the "New Christians" refers to the Jewish converts, who were generally known as Conversos (or in

5151-614: The Duke of Villahermosa (head of the Council of Portugal ), and Mascarenhas had considerable trouble securing investment commitments. The Companhia do commércio da Índia (or Companhia da Índia Oriental ) finally came into existence in August 1628, when it was granted a charter by King Philip III. The Companhia was to be governed by a Câmara de Administração Geral , composed of a president (Jorge Mascarenhas) and six administrators, elected by

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5252-528: The Dutch Empire , the early English Empire , or Huguenot -influenced areas of the Kingdom of France such as Bordeaux , and openly practiced Judaism, which furthered suspicion of Jewish crypsis. Nevertheless, a significant number of those "New Christians" of converso ancestry were deemed by Spanish society as sincerely Catholic and they still managed to attain prominence, whether religious (St. John of

5353-587: The Iberian colonies of the New World by falsifying or buying limpieza de sangre ("cleanliness of blood") documentation or attaining perjured affidavit attesting to untainted Old Christian pedigrees. The descendants of these, who could not return to Judaism, became the modern-day Christian-professing Sephardic Bnei Anusim of Latin America . Also as a result of the unceasing trials and persecutions by

5454-697: The Portuguese Inquisition was created to enforce Catholic orthodoxy and to investigate allegations of heresy . This became a political issue in the kingdoms of the Portuguese-Spanish Union itself and their respective empires abroad, particularly in Spanish America , Portuguese America , and the Caribbean . Sometimes "New Christians" travelled to territories controlled by Protestant enemies of Spain , such as

5555-579: The Spanish and Portuguese Inquisition , other Jewish-origin New Christians opted to migrate out of the Iberian Peninsula in a continuous flow between the 1600s to 1800s towards Amsterdam , and also London , whereupon in their new tolerant environment of refuge outside the Iberian cultural sphere they eventually returned to Judaism . The descendants of these became the Spanish and Portuguese Jews . Although Iberian Muslims were protected in

5656-494: The 500,000 Muslims had been converted to Christianity . There is no universally agreed figure of Morisco population, but Christiane Stallaert put the number at around one million Moriscos (New Christians and their descendants) at the beginning of the 16th century. The governments of Spain and Portugal created the Spanish Inquisition in 1478 and the Portuguese Inquisition , including the Goa Inquisition , in 1536 as

5757-536: The Americas , deportation from the colonies. In addition to the above restrictions and discrimination endured by New Christians, the Spanish Crown and Church authorities also subjected New Christians to persecution , prosecution , and capital punishment for actual or alleged practice of the family's former religion. After the Alhambra Decree of the expulsion of the Jewish population from Spain in 1492 and

5858-548: The Companhia's administration. The Companhia would be in charge of running & collecting the customs dues payable at the Casa. The Companhia was established with a joint-stock block of six years, renewable for another six with a minimum subscription of 100 cruzados . The Companhia was granted a monopoly on trade in coral, pepper, cinnamon, ebony and cowrie shells, and could be extended to other items upon request. It had full administrative & juridical privileges, including

5959-454: The Cross , St. Teresa of Ávila , St. John of Ávila , St. Joseph of Anchieta , Tomás de Torquemada , Diego Laynez , Francisco de Vitoria , Francisco Suárez , and others) or political ( Juan de Oñate , Luis de Carvajal y de la Cueva , Hernán Pérez de Quesada , Luis de Santángel , and others). According to António José Saraiva, a Portuguese literature teacher and historian, "The reality of

6060-698: The Habsburg crown. But this conflicted with older lines of Portuguese authority, and the council was eventually dissolved in 1614. It was around this time that the idea of a chartered private Portuguese East Indies company, organized along the lines of Dutch and English companies, was first conceived. This was promoted by Portuguese New Christian merchant and Mercantilist pamphleteer Duarte Gomes Solis who lived in Madrid, most notably in his Spanish language tract Discursos sobre los Comercios de las Indias (published 1622, although circulated earlier). Solis argued that

6161-487: The New World, many professions—regardless of their sincerity as converts. Other derogatory terms applied to each of the converting groups included marranos (i.e. "pigs") for New Christians of Jewish origin, and moriscos (a term which carried pejorative connotations) for New Christians of Andalusian origin . Aside from social stigma and ostracism , the consequences of legal or social categorization as

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6262-403: The average cost of production "declines throughout the relevant range of product demand". The relevant range of product demand is where the average cost curve is below the demand curve. When this situation occurs, it is always more efficient for one large company to supply the market than multiple smaller companies; in fact, absent government intervention in such markets, will naturally evolve into

6363-429: The basis for topics such as industrial organization and economics of regulation . There are four basic types of market structures in traditional economic analysis: perfect competition , monopolistic competition , oligopoly and monopoly. A monopoly is a structure in which a single supplier produces and sells a given product or service. If there is a single seller in a certain market and there are no close substitutes for

6464-448: The capital of New Christians convicted by the Portuguese Inquisition , had a measure of protection). Although there were provisions against allowing any other East Indies company to be formed in Habsburg territories, investment in the Companhia was open to all subjects of Philip III and his allies (thus Spaniards, Italians, Flemings, etc.) Nonetheless, none of this was enough to garner much enthusiasm from private individuals. The company

6565-467: The case that at the profit-maximizing quantity MR and MC are less than price, which further implies that a monopoly produces less quantity at a higher price than if the market were perfectly competitive. The fact that a monopoly has a downward-sloping demand curve means that the relationship between total revenue and output for a monopoly is much different from that of competitive companies. Total revenue equals price times quantity. A competitive company has

6666-606: The concept of New Christian was a legal mechanism and manifestation of racial antisemitism rather than Judaism as a religion. For those of Moorish origin, it was a manifestation of racial anti-Berberism and/or anti-Arabism . Portuguese New Christians were alleged to have been partners with an English factor in Italy in a notable 17th century marine insurance swindle. The related Spanish development of an ideology of limpieza de sangre ("cleanliness of blood") also excluded New Christians from society—universities, emigration to

6767-697: The crown of Portugal, changed little at first. However, the increasing influence of the Dutch and English East India Companies on the Indian subcontinent and elsewhere in the East Indies after 1598 led the king to experiment with different arrangements to secure the Portuguese colonial empire. In 1605, he created the Conselho da Índia , to bring affairs in Portuguese India under closer supervision of

6868-598: The dichotomy between Old and New Christian only existed in the Inquisitorial taxonomy. The religious or ethnic definition of the New Christians was, in the last analysis, merely formal and bureaucratic. Also, the label of the New Christian can be based on rumors originating from dubious genealogies, slander and intrigue." By law, the category of New Christians included recent converts and their known baptized descendants with any fraction New Christian blood up to

6969-414: The extremes of market structures there is some similarity. The cost functions are the same. Both monopolies and perfectly competitive (PC) companies minimize cost and maximize profit. The shutdown decisions are the same. Both are assumed to have perfectly competitive factors markets. There are distinctions; some of the most important are as follows: The most significant distinction between a PC company and

7070-407: The first unit for $ 17 the second unit for $ 14 and so on which is listed in the table below. Total revenue would be $ 55, his total cost would be $ 25 and his profit would be $ 30. Several things are worth noting. The monopolist acquires all the consumer surplus and eliminates practically all the deadweight loss because he is willing to sell to anyone who is willing to pay at least the marginal cost. Thus

7171-400: The form of price control is necessary as it helped efficient market. To reduce prices and increase output, regulators often use average cost pricing. By average cost pricing, the price and quantity are determined by the intersection of the average cost curve and the demand curve. This pricing scheme eliminates any positive economic profits since price equals average cost. Average-cost pricing

7272-429: The generally poorer Ethiopian economics students. Similarly, most patented medications cost more in the U.S. than in other countries with a (presumed) poorer customer base. Typically, a high general price is listed, and various market segments get varying discounts. This is an example of framing to make the process of charging some people higher prices more socially acceptable. Perfect price discrimination would allow

7373-468: The inverse demand curve is of the form x = a − b y {\displaystyle x=a-by} . Then the total revenue curve is TR = a y − b y 2 {\displaystyle {\text{TR}}=ay-by^{2}} and the marginal revenue curve is thus MR = a − 2 b y {\displaystyle {\text{MR}}=a-2by} . From this several things are evident. First,

7474-591: The investors, with full powers, although its judicial acts, administrative practices and finances were subject to review by an advisory Conselho do Comércio (Board of Trade) in the king's court in Madrid . The charter envisaged a two-year transition period, during which the royal Conselho da Fazenda would continue to supervise the India fleets , the Casa da Índia and the Armazém da Índia, before passing them all over to

7575-466: The marginal cost (which is the output quantity for a perfectly competitive and allocatively efficient market). In 1848, J.S. Mill was the first individual to describe monopolies with the adjective "natural". He used it interchangeably with "practical". At the time, Mill gave the following examples of natural or practical monopolies: gas supply, water supply, roads, canals, and railways. In his Social Economics , Friedrich von Wieser demonstrated his view of

7676-587: The marginal revenue curve has the same x {\displaystyle x} -intercept as the inverse demand curve. Second, the slope of the marginal revenue curve is twice that of the inverse demand curve. What is not quite so evident is that the marginal revenue curve is below the inverse demand curve at all points ( y ≥ 0 {\displaystyle y\geq 0} ). Since all companies maximise profits by equating MR {\displaystyle {\text{MR}}} and MC {\displaystyle {\text{MC}}} it must be

7777-444: The market. Monopolies can be formed by mergers and integrations, form naturally , or be established by a government. In many jurisdictions, competition laws restrict monopolies due to government concerns over potential adverse effects. Holding a dominant position or a monopoly in a market is often not illegal in itself; however, certain categories of behavior can be considered abusive and therefore incur legal sanctions when business

7878-401: The monopolist and none to the consumer. In essence, every consumer would be indifferent between going completely without the product or service and being able to purchase it from the monopolist. As long as the price elasticity of demand for most customers is less than one in absolute value , it is advantageous for a company to increase its prices: it receives more money for fewer goods. With

7979-445: The monopolist to charge each customer the exact maximum amount they would be willing to pay. This would allow the monopolist to extract all the consumer surplus of the market. A domestic example would be the cost of airplane flights in relation to their takeoff time; the closer they are to flight, the higher the plane tickets will cost, discriminating against late planners and often business flyers. While such perfect price discrimination

8080-402: The one monopoly profit theorem is not true if customers in the monopoly good are stranded or poorly informed, or if the tied good has high fixed costs. A pure monopoly has the same economic rationality of perfectly competitive companies, i.e. to optimise a profit function given some constraints. By the assumptions of increasing marginal costs, exogenous inputs' prices, and control concentrated on

8181-508: The postal service as a natural monopoly: "In the face of [such] single-unit administration, the principle of competition becomes utterly abortive. The parallel network of another postal organization, beside the one already functioning, would be economically absurd; enormous amounts of money for plant and management would have to be expended for no purpose whatever." Overall, most monopolies are man-made monopolies, or unnatural monopolies, not natural ones. A government-granted monopoly (also called

8282-426: The power to set prices or quantities although not both. A monopoly is a price maker. The monopoly is the market and prices are set by the monopolist based on their circumstances and not the interaction of demand and supply. The two primary factors determining monopoly market power are the company's demand curve and its cost structure. Market power is the ability to affect the terms and conditions of exchange so that

8383-455: The price discrimination promotes efficiency. Secondly, by the pricing scheme price = average revenue and equals marginal revenue. That is the monopolist behaving like a perfectly competitive company. Thirdly, the discriminating monopolist produces a larger quantity than the monopolist operating by a uniform pricing scheme. Successful price discrimination requires that companies separate consumers according to their willingness to buy. Determining

8484-403: The price of a product is set by a single company (price is not imposed by the market as in perfect competition). Although a monopoly's market power is great it is still limited by the demand side of the market. A monopoly has a negatively sloped demand curve, not a perfectly inelastic curve. Consequently, any price increase will result in the loss of some customers. Price discrimination allows

8585-464: The price-fixing methods across market structures, analyze the effect of a certain structure on welfare, and vary technological or demand assumptions in order to assess the consequences for an abstract model of society. Most economic textbooks follow the practice of carefully explaining the "perfect competition" model, mainly because this helps to understand departures from it (the so-called "imperfect competition" models). The boundaries of what constitutes

8686-453: The product or service less than its price, monopoly pricing creates a deadweight loss referring to potential gains that went neither to the monopolist nor to consumers. Deadweight loss is the cost to society because it is inefficient. Given the presence of this deadweight loss, the combined surplus (or wealth) for the monopolist and consumers is necessarily less than the total surplus obtained by consumers by perfect competition. Where efficiency

8787-403: The product, then the market structure is that of a "pure monopoly". Sometimes, there are many sellers in an industry or there exist many close substitutes for the goods being produced, but nevertheless, companies retain some market power. This is termed "monopolistic competition", whereas in an oligopoly , the companies interact strategically. In general, the main results from this theory compare

8888-490: The revenue maximizing quantity for the monopoly is 12.5 units and the revenue-maximizing price is 25. A company with a monopoly does not experience price pressure from competitors, although it may experience pricing pressure from potential competition. If a company increases prices too much, then others may enter the market if they are able to provide the same good, or a substitute, at a lesser price. The idea that monopolies in markets with easy entry need not be regulated against

8989-517: The right to keep all spoils from seizures of Dutch and English ships (after deducting the royal fifth ). The crown was the largest investor, committing 1,500,000 cruzados for the first three years. Although some municipalities (esp. Lisbon) also invested, private individuals were less interested. To make it attractive, subscribers were guaranteed an annual return of 4% plus dividends and the subscriptions were laced with various privileges (e.g. title in king's household, protection from debt seizure, even

9090-412: The risk of losing their monopoly to new entrants. This is likely to happen when a market's barriers to entry are low. It might also be because of the availability in the longer term of substitutes in other markets. For example, a canal monopoly, while worth a great deal during the late 18th century United Kingdom, was worth much less during the late 19th century because of the introduction of railways as

9191-445: The same time continue their business. ...Monopoly, besides, is a great enemy to good management. – Adam Smith (1776), The Wealth of Nations According to the standard model, in which a monopolist sets a single price for all consumers, the monopolist will sell a lesser quantity of goods at a higher price than would companies by perfect competition . Because the monopolist ultimately forgoes transactions with consumers who value

9292-406: The seller divides the consumers into different groups according to their willingness to pay as measured by their price elasticity of demand. Each group of consumers effectively becomes a separate market with its own demand curve and marginal revenue curve. The firm then attempts to maximize profits in each segment by equating MR and MC, Generally the company charges a higher price to the group with

9393-648: The student may have been able to purchase at the Ethiopian price. Similarly, a wealthy student in Ethiopia may be able to or willing to buy at the U.S. price, though naturally would hide such a fact from the monopolist so as to pay the reduced third world price. These are deadweight losses and decrease a monopolist's profits. Deadweight loss is considered detrimental to society and market participation. As such, monopolists have substantial economic interest in improving their market information and market segmenting . There

9494-442: The team. The three basic forms of price discrimination are first, second and third degree price discrimination. In first degree price discrimination the company charges the maximum price each customer is willing to pay. The maximum price a consumer is willing to pay for a unit of the good is the reservation price. Thus for each unit the seller tries to set the price equal to the consumer's reservation price. Direct information about

9595-499: The third generation, the fourth generation being exempted. In Phillip II 's reign, it included any person with any fraction of New Christian blood "from time immemorial". In Portugal, in 1772, Sebastião José de Carvalho e Melo, 1st Marquess of Pombal decreed an end to the legal distinction between New Christians and Old Christians . Although the category of New Christian is meaningless in Christian theology and ecclesiology , it

9696-545: The treaty signed at the fall of Granada , and the New Christian descendants of former Muslims weren't expelled until over a century later. Even so, in the meantime, different waves of Andalusian Muslims and New Christians of Moorish origin left the Iberian Peninsula and settled across North Africa and in the provinces of the Ottoman Empire . Over a hundred thousand of Iberian Jews converted to Catholicism in Spain as

9797-545: Was a socio-religious designation and legal distinction referring to the population of former Jewish and Muslim converts to Christianity in the Spanish and Portuguese empires, and their respective colonies in the New World . The term was used from the 15th century onwards primarily to describe the descendants of the Sephardic Jews and Moors that were baptized into the Catholic Church following

9898-659: Was introduced by the Old Christians who claimed that "pure unmixed" Christian bloodlines distinguish them as a unique group, separated from ethnic Jews and Iberian Muslims. The Old Christians wanted to legally and socially distinguish themselves from the conversos (converts to Christianity) whom they considered being tainted by their non-Spanish bloodlines-even though the overwhelming majority of Spain's Muslims were also indigenous Iberians, descendants of native Iberians who earlier converted to Islam under Muslim rule . In practice, for New Christians of Jewish origin,

9999-458: Was launched with only around half the capital it originally sought to raise. The Companhia proved unsuccessful. Investors remained skeptical, overseas Portuguese merchants rejected the new Companhia's authority, and the Anglo-Dutch breach of the old Portuguese empire in Asia had become irreparable, squeezing margins on the spice trade. The Companhia proved unprofitable, and soon ceased operating and

10100-519: Was liquidated in April, 1633. The Casa da Índia and the India trade was brought back under the supervision of the Conselho da Fazenda (royal finance council). Monopoly A monopoly (from Greek μόνος , mónos , 'single, alone' and πωλεῖν , pōleîn , 'to sell') is a market in which one person or company is the only supplier of a particular good or service. A monopoly

10201-591: Was used in the 1914 book Social Economics written by Friedrich von Wieser. As mentioned, government regulations are frequently used with natural monopolies to help control prices. An example that can illustrate this can be found when looking at the United States Postal Service, which has a monopoly over types of mail. According to Wieser, the idea of a competitive market within the postal industry would lead to extreme prices and unnecessary spending, and this highlighted why government regulation in

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