Question

What is a monopoly? • What are the benefits and costs of monopoly? Policy: Please submir your initial post by Day 4 of the week Thursday) and return to respond to at least two students by Day 6 of the week (Saturday). Your initial post should be about 250 words and refer to a

Answer 1

What is monopoly ?

Monopoly is a form of market structure where there is a single seller or producer producing a commodity.

Features of monopoly

(a) Single seller/ producer

(b) No close substitutes of the commodity produced by the firm

(c) Monopoly firm is a price setter

(d) Price discrimination is possible as monopoly firm tends to charge different prices in different market for the same commodity they produce.

Benefits of monopoly

(a) Monopoly charges higher prices therefore they earn higher profit also

(b) Economies of scale exists as they have low average cost when they increase their scale of production

(c) A monopoly firm also get benefit from patent rights.

Costs of monopoly

(a) A monopoly firm charges higher prices, so it leads to decrease in consumer surplus as many consumers cannot afford to pay.

(b)It also leads to market inefficiencies because of price dicrimination

(c)It is the less efficient form of market structure as it leads to deadweight losses