Question

Explain the abuse of monopoly power as a market failure.

please provide at least 150 words

Answer 1

Ans:-Abuse of monopoly power leads to market failure.A monopoly means the domination of a market by one owner or seller.Monopolistic market is an imperfect market condition because the monopolist decide the price of the product and the quantity of the product .In monopoly ,the market failure happens when the pricing system fails.The aim of the monopolistic market is making profit,for that purpose monopolist set higher price for product and restrict output .As a result the consumers paying higher price for smaller output .That causes market failure and misallocation of resources.Monopolies produce an equilibrium at which the price of the product is high and the quantity is very low.So the government controlled the monopolies to protect the interest of the consumers because they set higher price than in competitive market .The government policies controlled monopoly through price capping and limited price of the product.