Question

You will find that we consume monopolies in our daily lives from our electricity to internet service. Why do you think monopolies are classified as a price maker and what are the challenges that monopolies will be facing given the lack of competition?

Answer 1

Monopolies are classified as a price maker because There is absense of competition from the other firms which makes the monopoly firm to adjust the price according to their choice i.e they can adjust the price whatever they want to charge. There are no substitutes in ront of buyers in case of monopoly firm hence they can charge for the product what ever they want to that why they are considered as price makers.

challanges that monopolies will be facing are-

1. inefficiency - As in monopoly firm they produce the quantity of output for the sake of maximising the profit as same as in other firms by equating marginal revenue and marginal cost. But as the demand curve of monopoly firm is negative sloping which means prive is greater the marginal revenue which also meams price is greater than marginal cost and hence the production is inefficient.

2. Income inequality - there is inequitable distribution of income under monopoly firm as they earn economic profit, and its surplus from consumer is transferred from buyers to monopoly and hence buyers end up with lesser income and monopoly end up with more.