Question

Imagine a potential monopolist is trying to monopolize an otherwise competitive industry. The firm wants to spend money lobbying and otherwise persuading the legislature to grant it a monopoly. How much, at most, would the firm be willing to spend in order to monopolize the industry?

Answer 1

The potential monopolist will spend the amount upon the lobbying that will be equal to the economic profit that will be earned by the firm after the monopolization. At this level of spending, firm will cover all of its cost and additional profit in the form of economic profit, will be spent to lobby law makers. Here, the output level will be produced, when MR = MC.

Answer 2

Explanation :-

1. Current (Competitive) vs. Monopoly Profits:

• In a competitive market, firms earn zero economic profit (just enough to stay in business).

• As a monopolist, the firm can charge higher prices and earn large profits due to no competition.

2. Willingness to Pay for Monopoly Power:

• The firm would not spend more than what it expects to gain from being a monopolist.

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3. Why?

• Spending more than future profits would make the deal a loss.

• Rational firms aim to maximize net gains (monopoly profits minus lobbying costs).

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4. Real-World Insight:

• This explains why companies lobby heavily for patents, licenses, or regulations that block competitors—they’re investing in future monopoly earnings.

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Bottom Line: The firm’s max spending = lifetime monopoly profits it can capture.

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Note: Exact numbers depend on the industry’s profitability, but the logic is universal

Answer:
The firm would be willing to spend up to the total future profits it expects to earn as a monopolist.