Advantages of Monopoly Essay

Monopolies do not always breath to increased prices, lower outputs and welfargon losses. In fact, monopolies raise often lead to increases in societys welfare as extensive monopolisers benefit from economies of scale in drudgery and distribution. These falls in cost can often be passed on to consumers in the manakin of lower priced products. We bequeath now discuss briefly just about of the potential advantages of monopolistic market structures. Lower production costs and increased welfareUnder monopoly, greater output and standardization can lead to lower costs. This can lead to economies of scale and scope, which can be passed on to consumers in the form of lower priced products. Natural monopoliesIt could be argued that some industries are more effectually organized as monopolies. Industries such as water, gas, electricity and communications are often referred to as natural monopolies. A natural monopoly arises when the ratio of the minimum efficient scale to industry size is so large that industries can only support one efficient profligate. In natural monopolies, fixed costs form a large part of total costs.If the monopoly is in private hands, the monopolist maximizes profits where fringy costs equal borderline revenues, and produces at output level and charges price. The monopolist makes excess profits equal to the shaded area. If the firm were forced to charge a price that would prevail under competition, it would set price equal to marginal costs and produce at output level. For example, suppose we have a water company that supplies a certain part of the country through and through a network of pipes. It would be inefficient for a new firm to enter the market, set up its own system of pipes and then bugger off supplying a segment of the market. This is because the level of output the firm produces would allot insufficient revenue to cover total costs. This competition would in that respectfore lead to wasteful duplication (and competit ion) of systems. Technical progressLarge monopoly profits whitethorn be used to finance research and development programmes. Monopoly profits are the reward for successful innovations. These innovations bring welfare gains to society in the form of new products and processes. Furthermore, these monopoly profits will not persist as there will eventually be entry by imitators or patents will lapse, which will eventually dissipate these profits. These assertions have been tested empirically for manufacturing and assist industries in a number of countries. Avoids wasteful forms of competitionMonopolies may suspend wasteful forms of competition such as advertising, which are prevalent features of more oligopolistic market structures. Given that monopolists to some extent have a confined market, there is little incentive for monopolies to advertise. In addition, monopolists may similarly dedicate a degree of price stability. They may be expert in accurately gauging the level of dema nd and supply. A monopolist may also be better placed to endure any downturn in the business cycle.Referencehttp//classof1.com/homework-help/economics-homework-help/