Answer to Question #67393 in Microeconomics for fifi
1. The good is essential for daily living – without a maximum price some people may be unable to afford the good. By reducing the price, it can help reduce relative poverty.
2. Monopoly exploitation. If firms have monopoly power, they can charge high prices to consumers – higher than the marginal cost of production and higher than in a competitive market. A maximum price can be a way of reducing ‘monopoly prices’ and also increase allocative efficiency.
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If Eskom (assumed sole supplier of electricity) is earning economic profits in the short run. Explain using a well labelled diagram how much output Eskom will produce and at what price this output will be sold if Eskom maximises profits.
1.1 Explain the implications and short comings of the kinked demand curve in an oligopolistic market.
1.2Using relevant examples differentiate between monopoly and monopolistic competition.