ECO701 - Economics and the Business Environment

Assignment Task

QUESTIONS

1. The Figure below shows the Demand, Marginal Revenue, Average Total Cost and Marginal Cost of a transport to a remote island. Explain why a private monopoly firm will not be interested in providing the service.

2. In the tobacco producers engaged in fierce battles for market share. The major weapon in that war was advertising designed not to attract new smokers, but to lure smokers away from competing brands. Consider the following scenario: There are two tobacco sellers, Phillip and R.J., each of whom can choose to advertise on TV or not. There are of pre-advertising profits available to the two firms.

3. The company has a monopoly, it does not have to worry about being undercut by competitors, therefore there is no incentive for it to either enhance its services or lower its costs. If there is no significant rivalry, the company does not need to make significant investments in research and development or innovation since it can simply continue to retain its dominating position and bring in profits. Without this competition, the company may have little reason to do so. If a service is difficult to create or very costly to provide, a private company that has monopolistic power may be less interested in delivering that service. If the firm's manufacturing costs are high, there is a possibility that it will not be able to create a sufficient return to warrant the investment.

4. In a similar vein, if the company has to make a substantial investment in the infrastructure or the technology in order to provide the service, they may be hesitant to take on the risk. If there is not much of a demand for a certain service, a company that has a monopoly on the market may not be interested in supplying it. 

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