5.5 advantages and disadvantages of monopoly

Question 1

what are the disadvantages of monopoly?

Answer 1

allocative inefficiency, consumers are exploited as costs less the sold for, lower consumer surplus, restriction in choice, output and possibly poor quality

productively inefficient, forego economies of scale or too big suffer diseconomies of scale, costs are higher then they could be so prices are higher

x inefficient, allow for waste due to lack of competition with higher prices

inequality in necessity markets e.g. food drink poor consumers are forced to pay higher prices

Question 2

what are the pros of monopolies

Answer 2

potential for dynamic efficiency, for firms gain more market share, patent new tech for consumers lower prices could be passed on by new production techniques , new tech more consumer welfare

greater economies of scale, despite productive inefficiency still can exploit due to size so marginal cost curve is lower actually can produce at lower price and higher quantity then small firm operating at allocative efficiency in a competitive market

natural monopoly can give society decriable outcomes if regulated properly

monopoly can cross subsidise goods/services to subsidise loss making good or service they may be producing that gives positive externalities of production and social welfare