1)What are monopoly characteristics?

2)What is an externality? Give an example of a positive externality and an example of a negative externality. What is the difference between private costs and social costs? From an economic perspective, is it sound policy to pursue a goal of zero pollution? Why or why not?

1)A monopoly is a single seller, price and profit manipulating, and high-barrier entity in an economic system. The characteristics help to define its influence on an economy's market.

As a single-seller entity, a monopoly controls the majority of the market. As a lone entity, a monopoly can set its own prices for its product(s); competition is scarce. By setting its own prices, a monopoly can maximize its profits. It controls its own niche market. This can also lead to price discrimination. A monopoly controls the market, so there are high barriers for those trying to infiltrate the market. In doing so, a monopoly's product(s) is(are) unique.

2)

An externality is the positive or negative effect of one party's activities on another party that is not included in the price of the product.

An externality that is enjoyed by both parties is considered a positive externality. A typical example is a honey farmer placing his/her beehives next to an apple farm. Both parties will benefit in such a way that the bees will collect nectar from the apple farm for the honey production and the bees will also play a part in the apple tree pollination process. A negative externality is a cost that is suffered by an external party; for example, if you own a coal power station, the negative externality will be the carbon emissions that are released into the environment, which can play a role in global warming.

Private costs are the costs incurred by the producer in order to produce his/her product/service. An example of private costs is labor. Social costs are private costs as well as the cost of externalities. Considering the above mentioned coal power station example, the private costs include labor costs and the social cost will be the negative impact that the power station has on the environment.

As much as everyone would love to introduce a policy of zero pollution, it is impossible for anyone to produce zero pollution. When considering externalities, the optimal level of pollution would be where marginal social benefit (MSB) = marginal social cost (MSC).