Economics Effects of Monopoly.Docx Uploaded Successfully

Economics effects of monopoly. In vestal monopoly, a monopolist will send a higher price compared to the firms in purely competitive industry. They in addition sell a little level of output than the firms that involve in pure competition. Compared to pure competition, monopoly is inefficient in both robust and allocative efficiency. In purely competitive industry, the entry and exit of the firms will ensure that the P = MC + min. ATC. However, for pure monopoly industry there is no entry and exit of firms as it is conquer by only cardinal party.The marginal revenue (MR) curve lies below the demand and the produces output where MR = MC, so, the price exceeds the marginal represents (MC) and also exceeds the lowest average total cost (ATC). Pure Competition Pure Monopoly Price Price bill Quantity Pc D D Qc S = MC Pc MC Qc MR Qm Pm P = MC = min. ATC MR = MC Figure 1 Comparison of pure competition and pure monopoly. Looking at the chosen firm which is TNB, as In pure monopoly, there is an efficiency loss which is called dead lean loss (also known as excess burden and allocative efficiency).This situation occurs because the sum of consumer free + producer surplus is less than the maximum. In other words, this situation occurs either because of the people who have more marginal expediency than marginal cost are not buying the product, or those who have more marginal cost than marginal benefit are buying the product. Income transfer Monopoly wills increases income inequality because the profits are not evenly distributed. Monopoly will cause the transfer of income from consumers to the stockholders who own monopoly.This can be seen through levy of private levy on consumers. The owners will gain benefit at the expense of consumers. Cost complications In pure monopoly, the cost may vary because of four factors 1. Economies of scale According to www. bized. co. uk , economies of scale is the advantages of large scale production that issuance in lower unit (average) costs (cost per unit). Some firms reach large economies of scale because of specialized input, the gap of product developing costs, simultaneous consumption and network effects.Simultaneous consumption is the ability of product to satisfy a big numbers of consumers at the same time and network effects are increase of jimmy of product to each consumer. 2. X-Inefficiency X-Ineffiency is when the firms produce level of output that is higher than the lowest ATC. X-Inefficiency occurs due to poor focal point decisions, principal agent problem, poor worker motivation or ineffective supervision as the results of trustfulness on rules of thumb instead of real costs or revenue decision. Figure 2 X-Inefficiency 3. mesh seeking expenditures