Question

Explain why a firm that is a monopoly may be beneficial for society. (10 marks) Paragraph B IDEE C2

Answer 1

1)

The monopoly market is characterized by the single seller. Following are the benefits of monopoly:

• Monopoly market is dynamically efficient. Monopoly firm tends to make the investment in reasearch and development so that chances of potential entery can be reduced.
• In case of sin goods where the negative externalities are high, the monopoly firm tends to produce the reduced level of output.
• The monopoly is beneficial where the natural monopoly exists and average cost of production falls over the wide range of output.

2)

a)

Potato market is an example of perfectly competitive market, where large number of buyers and sellers. Product is homogeneous.

B)

This is example of monopoly as here is only single seller or one singer while the audience is in the large number.

C)

This is example of monopolistically competitive market. SUVs are the close substitutes.