Question

Explain what benefits might exist if a market is served by a monopoly rather than by many competitive firms. (Include at least 3 benefits).

Answer 1

Answer- Monopoly is condition in an industry where there is only one firm selling a unique product and as a result that firm is price maker or price searcher. Due to being a sole seller in the market the respective seller faces no competition and thus there are no substitute goods available in that market. Following are some benefits of monopoly-

• Better products from improved R & D - Due to monopoly the single firm can earn profits which are super natural in nature and thus they can make huge investments in future easily. Also due to better availability of funds and time the firms can concentrate on improving their products thus, improving profits and lowering per unit costs at the same time. This kind of situation would not be possible in case of competitive firms.

• Faces competition from internal companies- Since the monopolist is a sole seller in the domestic market but it faces competition in the international market and thus it helps to further improve the monopolist and it’s products.

• Monopoly is a good thing and not a bad- A firm becomes a monopolist only when it sells products that are unique in nature and faces no conpetition as it excels in the market. A monopoly firm is very dynamic in nature and very efficient in producing products that other firms cannot either wholly or at the same costs. An example of it can be Apple which is the leading company for phone and other electronic devices.

• Preference of monopoly in some Industries- Some industries in an economy prefer monopoly iver competitive firms as it helps to get economies of scale and produce at lower costs and thus products and services are available to the customers. An example could of electricity, pharmaceuticals, Drugs etc. Monopoly in these industries helps to be more efficient and helps in improving the products which cannot happen in case of competitive firms.

• Ethical or better use of profits- Since a firm produces super normal profits in case of monopoly thus, such profit can be used to finance other sectors in the industry and thus allevating loss making units in the industry.