What is rent seeking and how does it influence the inefficiency of monopoly?
What will be an ideal response?
Rent seeking is the pursuit of wealth by capturing economic rent. Any surplus—consumer surplus, producer surplus, or economic profit—is called economic rent. There are two forms of rent seeking activity to pursue a monopoly status: i) Buying a monopoly, where a person expends resources seeking to purchase monopoly rights for a price slightly less than the monopoly profit, or ii) Creating a monopoly, where a person expends resources seeking political influence, such as lobbying legislators to provide preferential market status by restricting domestic or international competition. The resources expended in rent seeking can be equal to the economic profit that a monopoly status would create for the owner.
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Competitive offers to buy and sell resources establish money prices, which reflect relative scarcities
A) in all economic systems. B) in any economic system where efficiency is important. C) only when there are no sunk costs to be recovered. D) when resources are privately owned.
Which of the following strategies are adopted by a business tycoon when the first new management of the purchased company fails?
a. He tries a second management team. b. He tries to train and motivate the existing management team. c. He sells off part of the company in the market. d. He tries to reduce the cost of production by lowering output.