The Case FOR Monopolies

Simplified notes on the case for monopolies

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  • Created on: 09-12-09 09:40
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The Case FOR Monopolies:
Promotion of Dynamic Efficiency:
Monopolists have the potential to earn abnormal profits. Dynamic efficiency occurs over time
as our idea of the desired product changes and advances. Monopolists can use abnormal
profits to invest in the research and development of innovative, new products.
Economies of Scale:
Economies of scale causes the cost per unit to decrease as the output increases. Many
larger firms experience this due the benefits they receive from:
Internal Economies of Scale:
Bulk buying: Discounted unit costs from ordering large quantities
Financial Economies of Scale: Easy attainment of finance, it is easier to find lenders and
to raise money
Marketing Economies of Scale: As the firms' size increases, it can spread its marketing
fixed cost over larger sales cutting the overall cost per unit
Managerial Economies of Scale: the opportunity for managers to specialise in specific
areas is important as it allows for staff to obtain a high level of expert knowledge in their
area and in turn in their efficiency.
Technical Economies of Scale: Large businesses have a large scale production
process, and therefore can improve efficiency by making better use of existing equipment or
new innovative production techniques.
External economies of scale arise as the monopolist's industry grows in size.
Transport and communication between firms improves, as does the
opportunity for the training and development of staff.
Their high market share and concentration means monopolists can make use of economies
of scale. The diagram below shows how monopolists can reduce their price and increase
their output as a result of this.


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