Discussion Question
A monopoly exists when a particular person or enterprise is the only supplier of a particular commodity. Monopolies are thus characterized by a lack of economic competition to produce the good or service and a lack of viable substitute goods. There could be two ways monopoly can occur - Natural monopoly and Pure monopoly (Kaplow, 2010). Natural monopolies occur since it is cheaper and more efficient to have the firm alone usually due to the very high infrastructural and start-up costs. This mostly happens with utility companies eg. electricity, water, gas, rail – as an effect of the need for the cables and grids for the electricity supply etc. More than one firm providing such a utility would be impractical and competition would not result in a potential inefficiency. With natural monopolies, economies of scale are very significant so that minimum efficient scale is not reached until the firm has become very large in relation to the total size of the market (Kaplow, 2010).
Pure monopolies occur when one firm is the only supplier of a good, and there are no close substitutes, for example post office.Monopolies may exist due to integration either by agreed mergers or contested take-overs.
Integration could be horizontal (businesses in same industry at the same stage of production becoming one) or vertical involving acquisition of a business in the same industry but at different stage of the supply chain
Monopoly power may also exist due to the ownership of Patents and Copyright protection or the exclusive ownership of assets (e.g. De Beers owns diamonds).
A legal monopoly power may be granted by the government to some business through nationalization or government awarded franchises or licenses.
Existing firms within an industry can gain monopoly power through the internal growth of a firm, taking advantage of, for example internal economies of scale.
Wage rate is the price of labour per unit. Mostly, workers are paid by the hour. Labor could be unskilled work, blue and white collar work, professional work, and small business owners.
The price that workers receive for their labor in the form of salaries, commissions, royalties, bonuses and other fringe benefits, like paid vacations etc are called wages.
Business productivity i.e ability to combine inputs to produce socially desirable outputs. More productive workers would be paid more. Productivity largely depends on the availability of inputs in the production of products and services (Kaplow, 2010).
Education or training – employers compete for workers though the level of wage they offer. Highly educated or trained worker would be paid higher as they would be more desirable to the employer.
The quality of the entrepreneurs determines the efficiency of the business. They lay down the initial organization of how the business will be conducted. They also affect the quality of the management who will consequently also affect the efficiency of the business, and therefore, the workers, by how effectively they control costs and produce the desired output.
The political and social environment of the country or region in which the business is located. Corruption levels of governments affect the way organizations are ran. This may lead to mismanagement in businesses leading to reduced efficacy of workers. Many businesses that are unionized, constrained by the demands of the union or by union contracts tend to be often less productive. For instance, unions may resist cost-saving changes like automation.
Market size - Larger markets usually promote efficiency and in the economy Economies of scale can easily be reached.
Backward Bending Labor Supply Curve
This attributes to situations where actual wages and salary increases. The key to this tradeoff is a comparison between the wage received from each hour of working and the amount of satisfaction generated by use of non-paid time. Such a comparison generally means that a higher wage compel individuals to commit most of their hours working for the high compensation. This leads to a positively sloping graphical representation. Such cases are common among peasant farm employees working on extensive plantation scheme.
References
Brunner, K. (1976). The Phillips curve and labor markets. Amsterdam: North-Holland Pub.
Kaplow, L. (2010). Targeted savings and labor supply. Cambridge, MA: National Bureau of
Economic Research.
Prasch, R. (n.d.). Reassessing the labor supply curve.
