Imagine that it is the year 2199. Technology has progressed at an incredible pac
ID: 1197404 • Letter: I
Question
Imagine that it is the year 2199. Technology has progressed at an incredible pace. The latest discovery is the plutonium engine, which is capable of converting plutonium, a by-product of nuclear fission, into fuel to power the nuclear reactors in our new form of transportation, the rocket-car. However, because the firm that invented the engine, the Futures Unlimited Corporation, already has a government license to control and distribute the quantity of this certain isotope of plutonium on the market, it is now conceivably in charge of a monopoly on plutonium-fueled transportation.
Describe the economic outcome of this single-price monopoly in terms of profit. Who gains and who loses in the long run?
How does the Futures Unlimited Corporation make output and price decisions?
How do different types of price discrimination affect monopoly profits?
What methods of monopoly regulation can be implemented against the Futures Unlimited Corporation? Examine the additional impacts such regulations might have on the company and the industry as a whole.
Imagine the discovery of a different isotope of plutonium for fuel that is available to any business that wishes to enter the market. What type of market is Futures Unlimited Corporation now operating in?
How do the two markets compare?
Explanation / Answer
__ When a single price monopolist maximizes profit, price is greater than marginal cost. Which means buyers are ready to pay more for each additional units than the unit cost to produce. When marginal cost is equal to the marginal revnue, it is making the most possible money. But if it tries to increase output, it will end up facing lesser profit or even a loss.
--- Futures Unlimited should always maintain a price that is greater than marginal cost and produce that quantity where the marginal cost is equal to the marginal revenue. This is the optima output, and anything beyond would result in less profit or loss.
--- Futures Unlimited can be regulated through several measures. It can be prevented from charging excess price. Government regulations can ensue that the firm meets minimum standards of service. It can also be regulated against abuse of monopoly power, and also appoint RPI-X regulators for price capping.
--- REgulation under price capping is a costly affair, and it can also end up in regulatory bias allowing firms to increase price. At time the regulators may be too strict not to allow the firm to make enough profit for investment.
--- When new firms enter into the market. Futures Unlimited is facing monopolistic competition. Each firm has its own pricing decisions, output levels, its market and cost of production since each one sells a slightly different product.
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