Disadvantages of Monopoly Essay

gameer prices and raze step upputMonopolies a great deal mean that prices will be higher and output lower than is the case for an manufacturing where competition prevails. Firms in one industry be producing under conditions of perfect competition, while the other fuddled is operating under conditions of monopoly. The appeals of production argon the same for each industry. Excess profitsHigh profits made by the monopoliser argon not necessarily an indication of efficient methods of production. The monopolist may, in fact, be using its market index finger to raise prices above marginal costs in order to enlarge its revenues. Higher costs and x-inefficiencies below competition, trues strive to minimize their inputs to produce a minded(p) level of output. Firms do not necessarily assimilate to produce at the minimum efficient scale to be expertly efficient, as long as they produce at the last costs for their given over scale of output. Firms which produce on the aver age cost curve be technically efficient or x-efficient. In other words, they produce at the lowest cost possible given their respective sizes. emulation normally implies that firms will be x-efficient. However, if firms are insulated from competition, as is the case for monopoly, then there is less inducing to minimize costs. Firms may instead adopt set down preference behavior by investing in activities to maximize the satisfaction of senior managers, at the subsequent sacrifice of profitability. Price discriminationMonopolists as bushel suppliers can discriminate between divergent groups of clients (based on their respective elasticitys of demand) separated into unalike geographic or product segments.A monopolist can practice price discrimination in several ways First-degree price discrimination. Often referred to as perfect price discrimination, this involves the monopolist charging each customer what he or she is willing to pay for a given product. By doing this the monopo list can increase revenue and erode any consumer surplus which consumers world power enjoy. Second-degree price discrimination. The monopolist charges customers different prices based on their usage. In other words, consumers might be charged a high price for initial usage, scarcely lower prices for subsequent units consumed. This type of pricing has been use in industries such as electricity, gas, water and telephony. Third-degree price discrimination. In this case, the monopolist separates customers into markets based on different demand elasticitys. Customers with inelastic demand are charged higher prices than those with elastic demand. Restrictive practicesMonopolists often use unfair practices to keep potential rivals out of the market. Even if rivals are successful in go in the market, the monopolist may choose to eliminate these firms by various restrictive price and non-price strategies such as predatory pricing and vertical restraints. Limited technical surfaceSome evidence suggests that technical progress is often slow when a single firm or group of firms dominates an industry. As they face no real competitive pressures, monopolists are under no real pressure to spend any supernormal profits earned on research and information of new product and processes, which is often seen as a risky investment. Consequently, technical progress in these industries is presumable to be slow.Referencehttp//classof1.com/homework-help/economics-homework-help/