monopoly= pros and cons

• A monopoly is considered allocatively inefficient because price is higher than marginal cost
• Monopolies voluntarily forego economies of scale, leading to productive inefficiency.
• How can monopolies contribute to inequalities in necessity markets?

  Higher prices
• One of the main benefits of monopolies is dynamic efficiency
• Match the type of efficiency with its description:

  Allocative efficiency ↔️ Price equals marginal cost

  Productive efficiency ↔️ Operating on the lowest part of the average cost curve
• Dynamic efficiency in monopolies can lead to lower prices and higher quality products over time.
• Why might monopolies exploit greater economies of scale compared to competitive firms?

  Greater size
• Greater economies of scale in monopolies can result in lower prices and higher output.
• Regulated natural monopolies can lead to socially desirable outcomes
• How can monopolies cross-subsidize loss-making goods or services?

  Supernormal profits
• What are two alternative objectives to profit maximization that monopolies might pursue?

  Sales maximization ||| CSR
• Cross-subsidization by monopolies can keep socially desirable goods or services available to consumers.
• Steps in the critique of monopoly benefits:

  1️⃣ Profits may be given to shareholders or used for other purposes

  2️⃣ Dynamic efficiency is not guaranteed

  3️⃣ Economies of scale depend on firm size

  4️⃣ Firm objective may not be profit maximization
• Price discrimination exaggerates the negative effects of monopolies.
• Legal monopoly power can coexist with strong competition
• What is the effect of contestability on monopolies?

  Reduces inefficiencies
• A natural monopoly in a luxury goods market may be less harmful than in a necessity market.