Question

Katanga Water Ltd is the only company in the northern part of Ghana that supplies water to rural communities in the northern part of Ghana. For many years, prospective firms have failed to break into the water sector in the north to compete with Katanga Water Ltd. The citizens are now complaining about the continued lack of competition in the water industry in the northern part of Ghana. (a) Explain four (4) problems that monopolies of this type create for societies. 12 marks (b) Explain three (3) possible ways monopoly firms can be beneficial in the long run, despite the problems that result from their existence. 6 marks (c) Explain why the government of Ghana should not be over-concerned about the existence of monopoly firms such as Katanga Water Ltd

Answer 1

Problems which are rises with monopoly-

1) Higher prices- In a monopoly system, every thing about related sector controlled by only one firm. Due to lack of another option consumer have to buy services on the desired price of buyer.

2) Monopoly reduces consumer surplus- In a monopoly, prices becomes very high. Only few consumers can afford the services in monopolistic firm.

3) restricted choice- In monopoly, consumers have very limited options for services or products.

4) reason for monopsony- Monopoly can lead the monopsony. In this, suppliers don't have any other option and have to sell their supplies for very low price. In the case of ghana, water tanker makers can face the monopsony.

Advantages- 1)innovation- In a Monopoly, a firm can make high profit and can spend this on technology and research.

2) International position- being a domestic monopoly can help a firm for being a big big firm for international level. And in the long run, a international firm is beneficial for own country.

3)Avoids duplication- In the monopoly, no one can make duplicate products of a ruling firm. Duplication is a major problem in many markets.

Government should not be over concerned about this.because sometimes monopoly is a sign of success. As mentioned in question that many others tried to defeat Katanga water Ltd.. Government should try to focus on services not the defeating a firm which is on the to by efforts. For example Even Apple is a monopoly and a good service provider than why government should oppose.