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Monopoly - Admission/Application Essay Example

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In respect to monopoly, inefficiency is defined as the in ability of the firm to allow the forces of demand and supply to freely interact to establish equilibrium prices and quantity without the firm intervention (Hirschey 111). The monopoly being a price maker, it restricts the…
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Download file to see previous pages... Monopoly is a price maker via the marginal cost pricing mechanism while perfect completion is a price taker (Hirschey 124). The monopoly retracts output and charges higher prices whereas perfect completion market has no control over prices which are determined by economic forces.
Price mechanism employed by monopoly leads to dead weight loss as consumer’s transactions is forgone by these firms. A monopoly is thus inefficient in total trade gains as compared to perfect competitive firm.
There is no competition in monopoly as compared to stiffer competitions in perfect competitive firm. This has led increased inefficiency and less innovativeness in monopoly as compared competitive firms.
A monopoly faces minimal completion based on the stiff barriers to entry which keeps away potential competitors making competition cost much expensive (Hirschey 134). This results into production of substandard commodities at busting prices.
This involves price discriminations which only accounts in parts for benefits of provision and consumption of optimal amount of commodities and costs and inability to achieve allocatve efficiency. This translates to market failure.
Lack of product variety leaves no customer without alternatives and will be forced to buy from poor quality products from monopoly that invest very less in research and development based on notion of automatic sales.
The respective graphs are attached showing the equilibrium price and quantity determination. The equilibrium price and quantity for competitive is determined at point b where the AC=AR=MR=MC=P making a normal profit (Hirschey 165). On the hand, the monopoly produce at AR=P as shown making an abnormal profit as it is able to restrict ...Download file to see next pagesRead More
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