Monopolies - Advantages and disadvantages table in A Level and IB Economics

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Created by: lyd_kate
Created on: 23-11-16 22:30

Monopolies

Advantages

Can benefit from economies of scale as they produce more than any single firm would in a perfectly competitive market.
ABNORMAL PROFIT in the long run can go towards research and development.
Lower average costs as a result means these can be passed onto the consumer, whereas if there were two firms the average costs would be higher since they would not have as monopsony power

Disadvantages

Resource misallocation can happen as higher prices means they would buy less of the good than they would have - consumer welfare is lost.
They are seen to be not competitive due to high barriers to entry.
They're seen to also be productively inefficient as they do not produce at the lowest point on the average cost curves
Threat of competitors entering leads to reduced costs
No access to a cartel (competing firms agree to charge same price)

Evaluation

There are more disadvantages of a monopoly to the consumer than vice versa

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