Monopoly

Question 1

Advantages/disadvantages of monopolies for consumers

Answer 1

Potentially dynamic efficiency-Lower prices in future or high quality/choice

Firms profit max-loss of consumer surplus/exploitation

If a natural monopoly, even better if regulated

Question 2

Advantages/disadvantages of monopolies on firms

Answer 2

Price makers-profit max-achieve dynamic efficiency-lower LRAC through investing with SNP+E.O.S to drive out competitors and improve market position further

X-inefficiency=lazy and complacent following large SNP and high barriers to entry, may stop investing in new tech too, costs and prices increase, reducing SNP. High prices incentivise more to join market

Question 3

Overall evaluations for monopoly (6)

Answer 3

Static vs Dynamic efficient-only if firms choose to reinvest profit

Diseconomies of scale could outweight E.O.S

Regulation exists (CMA,Price/profit caps,performance targets)

Price discrimination can further worsen consumer exploitation

Is it really a monopoly? e.g Supermarket industry

May be a natural monopoly-in that case better
Type of good/service. e.g tech, SNP to reinvest. if a necessity, bad

Question 4

Why is a natural monoply most efficient?

Answer 4

Competition would mean duplication of resources and non-full exploitation of E.O.S