Discussion Question Response

Cirilo Serrano - Allocative inefficiencies are a type of market that derive from monopolies. This occurs when a company cannot maintain a level of demand due to the fact that they do not have the required product. This will create an increase in price because there is less product to go around, thus making it more valuable. Monopolistic competition is a marketing situation where there are many companies present in the industry and produce almost exactly the same products but somewhat differentiated. Under monopolistic competition there is excess capacity in the long run since they do not operate at minimum average total cost. In situations like this production capacity is not fully utilized which results in product not being used. Suppliers in monopolistic competitive markets are price generators, much like monopolies, and will behave similarly in the short run. A monopolistic competitive company, like a monopoly, can maximize income by selling products to the point that marginal revenues equal marginal costs. The profit-maximizing price of the good will be calculated by the location of the profit-maximizing quantity on the average revenue curve. The profit made by the company is calculated by multiplying the amount of the good generated by the difference between the price and the average cost of producing the good.

Liam Marquis - One of the market inefficiencies that derives from a monopoly is an allocative inefficiency. This is when a firm is unable to keep up with demand causing there to be a lack of product. The demand will then in turn cause the price of the product to go up meaning that there is less product and it is more expensive to get. This is extremely dangerous when it comes to things that are necessary to live such as water.

One inefficiency derived from monopolistic competition is a lack of diversity in regards to products. This lack of diversity makes a market less appealing. The textbook references walking into a bookstore and being able to purchase many different types of books, this wouldn't be possible in monopolistic competition. Another inefficiency is deadweight loss, this can be caused by a monopoly type market. Deadweight loss is partially caused by the price of an item becoming to high and customers not wanting to purchase it due to the price. This creates a market lag due to the lack of products being purchased, this slows the economy down because money is no longer trading hands.

Monopolies are profitable because they are able to decide the market value of items. An example of this is the De Beers diamond mines. They own 80% of the worlds diamond mines, this means that they are able to decide the price of items as everyone has no choice but to purchase their diamonds. A monopolistic competitive market makes firm profitable as they are able to charge more for items because there is less competition

In your responses, comment on at least two posts from your peers by providing examples from the news of monopolies and firms in monopolistic competition markets. Compare and contrast the two types of markets.