Consider Hastur, an author promoting her new book, The King in Yellow. i). Will

Question

Consider Hastur, an author promoting her new book, The King in Yellow.

i). Will Hastur compete as a monopolist, an oligopolist, or a monopolistic competitor? Why?

ii). Given your answer to (i), would you expect Hastur to sell her book at, below, or above marginal cost? Why?

iii). Will Hastur be able to make positive profits in the long run? Comment on how your answers to (ii) and (iiI) can coexist.

iv). Suppose another author, Abdul Alhazred, comes out with a stylistically similar book, The Whisperer in Darkness. What would you expect to happen to the price and quantity sold of The King in Yellow?

Explanation / Answer

(i) Each book is generally unique in its story concept and also due to the writing style of its author. This uniqueness made the book a product with no close substitutes and thus author becomes a monopolist. So, Hastur will compete as a monopolist on account of her unique product (book).

(ii) The monopolist faces a downward sloping average revenue curve and his marginal revenue curve lies below average revenue curve. Therefore, in monopoly equilibrium when marginal revenue curve is equal to marginal cost, it is less than price (or average revenue). So, being a monopolist, Hatsur is expected to sell her book at above marginal cost.

(iii) Monopolist is able to earn positive profit in long-run as well. This is because if a monopolist is earning positive profit in short-run then due to strong entry barrier, it become difficult for other firms to enter the industry and due to this positive profit persist in long-run as well provided demand and cost conditions do not change in unfavorable manner.

(iv) If another author comes out with stylistically similar book then a related substitute for book of Hatsur will be created. This will decrease the demand for her book. Given the supply, this decrease in demand will result in fall in price and quantity sold.

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