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The monopoly market structure - Essay Example

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This essay talks about the monopoly market structure and analyzes the reasons, why it is considered an inefficient market. Also, the paper discusses, why it is preferable to have a monopoly market structure in some sectors, than perfect competition. …
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The monopoly market structure
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Download file to see previous pages In monopoly the output level is less and creates unemployment of the resources. The resources are not properly and efficiently utilized as compared to other market structures. In such market the price is greater than the marginal cost which becomes a burden on the consumers. The consumers are not satisfied with the production as the price is higher and the availability of the product is lower to create artificial scarcity - by this way the market can earn high profits(Gartner, 2009). Such a market structure is considered inefficient as it provides an advantage that the market is independent. It lets an authority manipulate price to increase profit whereas in perfect competition the actions of each firm is dependent and the firm cannot charge high prices because of competition. (Economics Help) The monopoly is inefficient in allocation because the price is greater than the marginal cost. By increasing the price of the product the market can earn higher profits as compared to other market structures (Green region in the above graph), but by reducing the price of the product (PM to P1) the market will have to sell more quantity of the product (QM to Q1) which will be the combined loss of both the consumer and the producer surplus (Pink region in the above graph). The Average Cost (AC) curve is higher than normal which shows that monopoly is productively inefficient because monopolist does not have to face competition to reduce cost to the lowest possible level. It means that the monopoly is ineffective in the production of goods (Williamson, 2008). Monopoly markets rarely innovate as they are aware that there are no competitors in the market, and they are the sole producer of the product whereas in perfect competition the products are timely and...
This essay presents modern comprehensive analysis of the disadvantages of the monopoly market structure with comparison to other types. Still, it is shown that in the paper, it is preferable to have monopoly market structure among gas and electric companies, water companies, local telephone companies. If the cost is very high to operate a businesses, then it is better to have one company rather than several firms because it will allow the company to lower their average costs through economies of scale; thus, the customers will get the product or service at a lower price.
Monopoly market structure is considered inefficient as it provides an advantage that the market is independent. It lets an authority manipulate price to increase profit. In monopoly the output level is low and creates unemployment of the resources. The resources are not properly and efficiently utilized as compared to other market structures. The monopoly is inefficient in allocation because the price is greater than the marginal cost.
This market structure gives an opportunity to create supremacy over the sector and eliminates threats from competitors as the firm established itself in the industry. With no substitutes available in the market, the sector can produce quality goods efficiently and can reduce its overall average cost because of the high fixed cost that has been incurred in order to manage such a business. The sector has complete control over the output level of the commodity, and it provides the sector with an advantage to influence the price
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