Question

What are the pros and cons of a Monopoly? What is a Monopoly’s relationship with efficiency and equity?

Answer 1

Pros of a Monopoly:

> Monopoly earn more profit than other forms of market structure and use that profit for R&D.

> Under the situation of Natural Monopoly, government control it more efficiently in terms of ensuring necessary profit for monopoly and lower price for consumers.

> Monopoly usually have better innovation of new idea and use of more advanced technology in the production process.

Cons of a Monopoly:

> Biggest cons is,  A Monopoly charge higher prices by controlling its supply.

> A Monopoly generally productively in-efficient.

> Consumers lack alternative options.

> Lower level of surplus for consumers.

There is adverse or negative  Monopoly’s relationship with efficiency and equity.

Explanation

There is greater amount of Dead-weight loss is associated with monopoly, when we compare the outcome of monopoly with competition. Monopoly is generally associated with loss of efficiency and equity. Under monopoly, price is higher which reduce the consumer surplus, and transferred to the producer. But at the same time, there is some part of surplus which is not transferred to the producer and create dead-weight loss. Therefore, there is adverse or negative  Monopoly’s relationship with efficiency and equity.