Hey, this is Alex Merced. I want to talk about Monopoly Price Theory. With Monopoly Prices Theory, everyone assumes there is only one business for certain product class that they have total control of prices. Now, Monopoly Price Theory, basically discusses in what environment do monopoly prices exist. Of course monopoly prices exist when the demand curve is elastic, meaning, if the price goes up, does the demand go down. If it's inelastic that means I could raise the prices as much as I want, the demand stays the same. So I can keep raising the price and keep maximizing my profits.
So Monopoly Price Theory is concerned with in what environment do the demand curve become inelastic. The only monopolies that exist truly, within inelastic demand curve are, government sanction, because essentially I like lot of utility companies, where the government essentially folk makes them the only game in town. And of course utilities are a need, you can't change demand for a utility. So the only environments, the only cases where you see monopoly prices exist is when the government grants monopoly power.
So any monopoly prices that exist usually look upon a government policies and state that's free the environment for this monopoly to exist. A natural monopoly does not have monopoly prices, but because the only reason they are the monopolies, because they are the most efficient producer of the good. That means a producing at a point that everyone agrees with, at a quality that everyone agrees with. So that's the case, you don't have monopoly prices, you are not seeing prices that are essentially manipulative because of an inelastic demand curve.
The demand curve is still elastic, because if the monopoly would to raise their prices for sure you would see a competitor that jump into the market at the old prices to get all those customers that they have just now lost. So there you know, so long as they keep their current level quality of prices, they can remain in a natural monopoly. But in change in that formula, certainly there the possibility of competition arises, which would then drive the prices back down. So a natural monopoly like, some people feel that company like Microsoft or Google aren't true monopolies. They can have true monopoly prices, because if they are going to make abuses of being the big players in their product classes, competition will force its way into the market.
So Monopoly Price Theory goes in a little bit more deep on this some great contributions to it by Murray Roghbard, Ludwig von Mises and what not so. Again it's for the mises.org and my SES.org to draw in a little bit more, Monopoly Price Theory. But that gives you a picture saying at the general concept. My goal is to make sure you guys get these general concepts, so that when you look at what's going on in the world, economically. You have a frame of reference to put it into.
So that ends my discussion on Monopoly Price Theory. So to summarize, we have discussed the Supply and Demand, Marginal Price Theory and Monopoly Price Theory. And just to give you a fair picture on how prices get set in the market. There are many other factors to take in consideration far as geopolitical factors in stay policies as far as how prices gets fixed, as far as subsidies and stuff like that, but I think at this point you can fill in the gaps. So here we go and I'll be back with more economic topics as time goes on. So thank you very much.
Transcription by:
Scribe4you Transcription Services