Question

) Consider a firm called Health-R-Us that is a monopoly. How does Health-RUs decide the price to charge and quantity to sell of the good it has a monopoly on? Illustrate your answer using a fully labelled and explained market diagram. Assume Health-R-Us is making monopoly profits and illustrate these on the same diagram. In addition, indicate the area on your diagram that illustrates the efficiency cost (the dead weight loss) of the monopoly, and explain why this dead weight loss arises. Part

Answer 1

Explanation:

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Answer 2

Part(A) Explanation-

When there is only one producer and numerous consumers, a monopoly occurs. Monopolies are defined by a lack of feasible replacement goods and a lack of economic rivalry in the production of the item or service. As a result, the price of a thing is controlled by a single producer — in other words, the producer is a price maker who may set the price by determining how much of a commodity to create. The majority of public utility firms are monopolies.

Monopolies wield far greater power than corporations in competitive marketplaces, yet they are still constrained by the demand for a product. Higher pricing results in fewer sales (unless in the most severe cases). As a result, monopolies must decide where to set their price and supply quantity in order to maximize profits. They have two options: they can establish their own pricing or they may set their own quantity and let market demand determine the price.

Monopolies, like non-monopolies, will produce in such a quantity that marginal income equals marginal cost. Monopolies, on the other hand, have the power to modify market prices based on the amount of product they produce since they are the sole supplier of products in the market. A monopolist can charge the price indicated by the market demand curve at the quantity when it produces the quantity determined by the intersection of MR and MC. As a result, monopolists produce less while charging more than a competitive enterprise.

Part(B) Explanation-

A legal monopoly is a business that operates as a monopoly as a result of a legislative mandate. A legal monopoly provides a controlled price for a certain product or service.

Well, The diagram will remain the same, but if the government withdraws the patent, other firms will enter the market, creating a competitive market situation in which the seller cannot decide the price alone, nor can he demand any price he wants; rather, market forces will determine the price to be kept for the consumer. The government has lifted the key characteristic of the barrier to entry, allowing the company to compete in the market. The schematic for this will be as follows.

A market system with perfect competition has the following characteristics:

• Entry and exit privileges
• Perfect knowledge/information
• Several businesses
• The price is determined by supply and demand in the industry.
• Firms are price takers, which means they have a completely elastic demand curve. Because of complete information, no one would purchase if they established a higher price. As a result, companies' demand curves are elastic.
• Firms under perfect competition will generate regular profits in the long run.

Part(C) Explanation-

The government will allow the business to commercialize its coronavirus vaccine because there is an urgent need and it is in the public interest. To put a stop to the pandemic, health authorities will need to vaccinate between $50$ and $75$ percent of the world's population. This necessitates increasing production and distribution capacity, lowering the cost of a new vaccine, determining who should have access first, and arranging mass immunization programs.

At most, the government can impose a price limitation and absorb the expense.

Governments must also guarantee that a future vaccine, as well as good therapies, are widely available. To avoid excessive prices that would prevent the most disadvantaged from obtaining access, they must agree on standards for patent rights and procurement up front. Whether public funds are distributed via push or pull processes, they should be linked to circumstances of accessibility and affordability. Governments must also agree on how to distribute limited product volumes among themselves based on necessity.

The company can operate as a legal monopoly, selling a single product or service at a set price and the government has the power to control it.

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The graphs are attached below for part (a) and (b) :-