Why don't monopolies innovate as much as competitive firms?

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Expert Solution

Firstly we need to understand the meaning of monopoly market

It is the market where there is only single seller and large number of buyers in the market

The price is decided only by the single seller

The most important reason due to which innovation is not found in the Monopoly market due to the lack of competition

If wetalk about the perfect competitive market whete there are large number of buyers and sellers in the market

There is a competition among the firms which causes and help in earning normal profit in the long run

Also in perfect competition market there are no barriers to entry and exit so n number of firms can enter at any point of time and exit aswell.

Similar goes with the monopolistic market in which products are slightly differentiated in terms of shape size colour whichcauses them to innovate more to stand out of competition and attract more consumer towards themselves

The same thing does not happen in a monopoly

Since there is only one seller so it produces in a very limited quantity

Rahul Sunny answered 3 weeks ago

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