Monopolies and Mergers

Question 1

what can a monopolist control?

Answer 1

it can control the market because its the only supplier of the product and can therefore charge whatever price it likes

Question 2

advantages of monopolies for consumers

Answer 2

firm can take advantage of economies of scale in order to keep prices down for consumers

firm doesn’t need to spend as much on promotion, keeping cost and prices down

firm can afford to carry out research and development of new products- profits higher

existence of large profits in the market means the firm are more inclined to look after customers

attention can be concentrated on serving the customer rather than beating competitors

Question 3

disadvantages of monopolies for consumers

Answer 3

it has the ability to exploit consumers by charging higher prices as consumers have little choice

there is less urgency to come up with innovative products to stay ahead of competition- may become complacent

less choice in market

level of output may be restricted, meaning limited supply and higher prices for consumers

Question 4

what is a merger?

Answer 4

is where two or more companies join together to form a new larger business. this larger business will obviously be more dominant than two individual businesses were

Question 5

advantages of mergers

Answer 5

provides an opportunity to expand the business easily and quickly

might prove to be a cheaper option than organic growth

may enable firm to take advantage of global trading

economies of scale- lower average costs