Business Economics by Roger Perman, John Scouller

By Roger Perman, John Scouller

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Sample text

Restaurants are close substitutes but not perfect substitutes. Our analysis suggests that in the long run firms in this industry should be able to make only normal profits, and this does seem to be borne out by the available evidence. Restaurants located at prime sites, of course, such as those adjacent to the Eiffel Tower or inside Disneyland Paris, may seem to do better than average but this is likely to be an illusion. The high returns 41 42 generated by good business at these sites are returns to the ownership of the prime sites, not returns to the restaurant business per se.

1 we begin by defining the characteristics of monopolistic markets and briefly discuss the causes of monopoly. 2 then develops a formal model of monopoly in order to analyse the consequences of monopoly for prices, output, and profits and to show why monopoly is considered to be 'attractive'. 3 we examine some ways in which the monopolist can increase the level of profits, in particular the use of price discrimination, and some factors which might operate to reduce the expected level of monopoly profits.

There are no rivals for the firm to worry about. The demand curve facing the firm is thus the downward-sloping market 44 45 demand curve for the firm's product. The term monopoly means single seller. 2. There are no close substitutes available for the monopolist's product. There are, of course, ultimately substitutes for most things so we are not saying that there are no substitutes but that the substitutes available are not close. For example, electricity and gas are substitutes but not perfect ones and, in some uses, not very close.

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