Markets: Monopoly
We're talking about the nature of markets, which furnish exchange opportunities that create larger sets of options to choose from. We've talked about perfectly competitive markets (with many functionally identical buyers and sellers), monopolistic competition (where buyers care about the identities of sellers), and oligopoly (where buyers care about the identities of the small number of prominent sellers).
Under monopoly, there is only one seller. Assuming that seller doesn't need to worry about new firms entering its market*, it has a lot of control over price. (Perfectly competitive firms have none. Monopolistically competitive firms have little. Oligopolistic firms have to worry about how a price change will affect the dynamics of the entire industry.)
Economists nearly always model firms as profit maximizers** in the very long run (in choosing what to produce and technologies for producing it), in the long run (in choosing the scale of production and investing in the amount of capital (plant and equipment) to use to produce, given the product and technology in place), and in the short run (hiring labor compatible with the most profitable level of output at that time, given the plant and equipment in place).
Next time I'll talk about what that means in terms of short-run choices for the monopolist, as compared with a perfectly competitive firm.
* After talking about profit-maximizing price/output choices for the monopolist I'll talk about where monopolies come from and a bit about how they've been treated in US history.
** Quite a ways down the road I'll have a lot to say about the varying objectives firm owners have, and ambiguities even within a profit-maximization objective. For now, briefly: this modeling assumption takes a big leap.
Under monopoly, there is only one seller. Assuming that seller doesn't need to worry about new firms entering its market*, it has a lot of control over price. (Perfectly competitive firms have none. Monopolistically competitive firms have little. Oligopolistic firms have to worry about how a price change will affect the dynamics of the entire industry.)
Economists nearly always model firms as profit maximizers** in the very long run (in choosing what to produce and technologies for producing it), in the long run (in choosing the scale of production and investing in the amount of capital (plant and equipment) to use to produce, given the product and technology in place), and in the short run (hiring labor compatible with the most profitable level of output at that time, given the plant and equipment in place).
Next time I'll talk about what that means in terms of short-run choices for the monopolist, as compared with a perfectly competitive firm.
* After talking about profit-maximizing price/output choices for the monopolist I'll talk about where monopolies come from and a bit about how they've been treated in US history.
** Quite a ways down the road I'll have a lot to say about the varying objectives firm owners have, and ambiguities even within a profit-maximization objective. For now, briefly: this modeling assumption takes a big leap.