Reference no: EM132020643

Reply to the following discussions - Microeconomics (200 words each)

Discussion 1- Jacqueline

1.) As with many of the questions and answers that we have been given so far ; the internet usually provides a framework in structure of a question , an answer or both.

Perfect competition and monopolies are mirror images of each other.

With perfect competition is a marketplace in which there could be an infinite amount of buyers and sellers; there is complete transparency as to pricing and as such the market price is beyond the control of individual buyers and sellers.

2.) Monopolies are the exact opposite in that there is usually one business that is in possession and control of a product or service. Being the sole purveyor of a product or service allows the monopoly to set a price what would be well above any price that would be set in a competitive market.

In choosing a near monopoly I would look at Netflix (I could have chosen Facebook but suspect a lot of other students will use it) as being the dominant; almost to the point near monopoly; in the streaming of movies and tv shows over the internet. Competition does exist from other streaming services such as Amazon Prime, Hulu, and Vudu.

Netflix has just over 125 million subscribers and have been the predominant recipient of subscribers who have been former cable viewers ("cutting the cord"). Differentiators and groundbreaking content that began with House of Cards have kept them firmly out in front of the competition. Chances are that they will ultimately acquire some of their competitors. However with the recent announcement by Disney to go into streaming there can be some stiff competition.

With regards to perfect competition I would mention eBay. Given little to no barriers -other than owning a laptop or smart phone- to entry; eBay can bring together an infinite number of both buyers and sellers. Given the "law of large numbers" of these buyers and sellers a market price which is determined and known to all-perfect information-for a sale to be made.

A decade ago Californians had voted on a $77 billion infrastructure project to build high speed rail system. Since that time the projects costs have escalated almost 20 percent and the opening date has been delayed 4 years to 2033. Even initial estimates were to hold up the program was called the" bullet train to nowhere". Californians are quite fond of their cars and airline flights were numerous and cheap enough that the majority of the $77 billion would never be recovered from usage.

Currently Californians are facing the dilemma that occurs when you have large fixed costs and is referred to as "throwing good money after bad". The majority of Californians are now against the project; however close to $12billion dollars has already been spent. Abandoning the project would mean flushing $12 billion dollars; but continuing the project-or at least some portion of it- still exposes taxpayers to many billions of dollars more that cannot be recovered.

Discussion 2-Seth

We all have experience with economic markets that are competitive and monopolistic. Competitive markets are those that have many buyers and sellers and one firm cannot influence the market price. Having a monopolistic hold on a market means there is one entity that controls the price, typically through exclusive access to buyers.

The most recent experience I had with a perfectly competitive market was buying a new car on Tuesday. My wife and I went to a dealership, found a car, and the dealer helped us find a bank to finance through. There are many banking options in the central NY area. The interest rates among the collective whole are close and one cannot command control of this area.

The most relevant example for a monopoly in this area is the supplier of electricity; National Grid. They own most of the telephone poles (funny that we still call them telephone poles when most every call dialed is from a cell phone) in this area and almost exclusively have control of the prices of electricity and gas supplied. A few surrounding towns have municipal power but the majority are forced to utilize National Grid's service. * Fun side note - National Grid is actually a British company. Thank you, Google, for that information.

An example of a sunk (stranded) cost that I see a lot are guaranteed portions of contracts for professional athletes. A quarterback performs well for their first four years of their rookie contract and the team decides to extend that player's contract. The player and ownership can negotiate a guaranteed percentage or dollar amount of their contract so that even if the athlete can't throw the ball (for whatever reason) anymore, they can still receive that dollar amount. The team has a sunk cost of the guaranteed portion and now must make a decision going forward of what's best for the team.

In order for price discrimination to exist, the company must hold a monopolistic hold of the market. If a competitive market exists, the customer will move their business to the cheaper company. However, a customer may only have the option to either have the service at the company-determined cost or not have the service. Picture this; you and your friends want to fly to Las Vegas.

You check online for ticket prices and for some reason (and completely unrelated for the validity of this example) only one airline has inbound flights to McCarran International Airport. You notice that flight prices during the day are two or three times higher than red eye flights. This airline can discriminate/set the market price on the tickets since they are the monopoly and want to maximize profits.