ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Education and Science»
  • Economics

Understanding Economics: Monopoly as a Profit Maximizer

Updated on January 11, 2015

Goal to Maximize Profit and Monopoly

As rational people, we embark on something that’ll benefit and won’t cause any burden on us. Since we live in a “monetary world”, everything is simply about money, and we want to earn more of it, so we engage in businesses. That is why every business exists with one ultimate reason, and that is to earn or gain profit. Monopoly, as a business model, has the same paradigm of maximizing profit. If a monopoly fails to gain any profit, positive and/or negative upcomings will begin to unravel.

Earning no profit at all, a monopoly may end up improving the level of the quality of goods and services it gives, heightening the productivity and efficiency of its production, increasing the prices of its goods and services and/or closing down the entire business.

You think Monopoly is just a game?
You think Monopoly is just a game? | Source

Improving the Level of Quality of Products

Consumers want maximum satisfaction for products or services they avail. Low standards (of quality) will result to disatisfaction; and hence, consumers wouldn’t buy those goods, resulting to lower demand. Written in the “Monopolyo sa Elektrisidad”, firms resort to getting their power supply directly in NAPOCOR rather than in Meralco due to its poor quality of service. This phenomenon reduces the quantity demanded from Meralco, and therefore lessens the quanitity needed to be produced.

Less quantity produced means higher cost of production, thus results to reduction of profit. For Meralco to regain back its consumer, it needs to improve the quality of service it provides. As stated in “Operating profit”, same phenomenon prevails in the US; it’s citizens are turning their backs against their own hospitals. They go abroad and choose the services provided by foreign medical institutions (such as India and Singapore). Now the trend continues, and American health institutions are gaining less and less profit. However, there’s only one clear way to cure this ailing condition, and that is to reform their system and provide an exceedingly more satisfying services. In both scenarios, improvement must be done to reverse or hamper the unwanted phenomenon.

Is it always really all about the money?
Is it always really all about the money?

The Power of Monopoly to Increase Prices

In terms of production, when one firm doesn’t gain any profit, it only means one thing – the exterely high total cost in producing its goods devours the chance of the firm to earn profit. This signals the firm to take the feat in heightening its productivity and efficiency in production. It enables every input to be maximally utilized, minimizing the total cost in production. This provides more profit for the firm – money is saved rather than spent.

Monopolist, by definition, has the power to determine the price of the goods and services it supplies, hence when it stops gaining profit (or receives lower profit), it has the prerogative to increase the prices of its goods and services to make up for its “loss”, and although this will bring disruption to the consumers, including investors, the monopolist (e.g. Meralco) has no choice but to do so.

No Option But to Close

If all else fail, the monopolist will have no other options but to close down the entire business. Being the sole supplier, this will drastically impair the economy. In addition, having no local suppliers would lead us to one alternative, and that’s importation. Imported goods, as we all know, cost more, and with the continuous demand, the country would have no choice but to import, fracturing the economy even more.

This same paradigm may also be applied in the case of oil industries under the price freeze regimen.

Monopoly in a Nutshell

When monopolists encounter zero profit, it may result to positive outcomes such as improvement in quality of their service and increase in productivity. Nevertheless, dreadful contra-outcomes may also arise. Increase in the prices of goods and services would impair the consumers, and closure of business may further damage the country including, not only the economy, but the whole citizens. This gives us the thought that prevalance of monopoly can eventually turn into a bliss but can also turn into a tragedy.

Comments

    0 of 8192 characters used
    Post Comment

    • yougotme profile image
      Author

      Renz Kristofer Cheng 6 years ago from Manila

      It's always good to hear comments from you. Thanks Robert Erich!

    • Robert Erich profile image

      Robert Erich 6 years ago from California

      Very well organized and well written article on monopolies! Thanks for writing and sharing. Voted up and useful!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: "https://hubpages.com/privacy-policy#gdpr"

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)