Advantages and Disadvantages of Monopolies


	Advantages and Disadvantages of Monopolies
	Advantages Supernormal Profits: Gives firm finance for investment/R&D to help maintain competativeness Monopoly Power: Leads to higher prices and lower output for consumers Monopolies are able to take advantage of economies of scale which enables them to lower their long run average costs Creative Destruction: Where supernormal profits act as an incentive for rival firms to breakdown the monopoly by product development and innovation (allowing them to by-pass barriers to entry)	Disadvantages Supernormal Profits: Gives the firm less incentive to be efficient and develop new products (X-inefficient) Monopoly Power: Firms will have the financial power to match rivals overseas Monopolies are productively inefficient as the don't produce at the lowest point on the average cost curve where it is most cost efficient Monopolies are allocatively inefficient as they set their prices above marginal costs. The means that the price is set above the opportunity cost of providing the good
	Evaluation

Supernormal Profits: Gives firm finance for investment/R&D to help maintain competativeness
Monopoly Power: Leads to higher prices and lower output for consumers
Monopolies are able to take advantage of economies of scale which enables them to lower their long run average costs
Creative Destruction: Where supernormal profits act as an incentive for rival firms to breakdown the monopoly by product development and innovation (allowing them to by-pass barriers to entry)

Supernormal Profits: Gives the firm less incentive to be efficient and develop new products (X-inefficient)
Monopoly Power: Firms will have the financial power to match rivals overseas
Monopolies are productively inefficient as the don't produce at the lowest point on the average cost curve where it is most cost efficient
Monopolies are allocatively inefficient as they set their prices above marginal costs. The means that the price is set above the opportunity cost of providing the good

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