Arguments in favour of monoploy, Managerial Economics

ARGUMENTS FOR MONOPOLIES

Although monopolies are usually hated mainly because their practice of consumer exploitation, there are some aspects of monopolies which are favourable.  The following arguments can be put forward in favour of monopoles:

  1. Economies of Scale

As it has the whole market to itself, the monopolistic firm will grow to large size and exploit economies of large scale production.  Hence its product is likely to be of higher quantity than product of a competitive firm that has less changes of expanding and lowering of the long run average cost (LRAC) of the firm. The price charged by the monopolistic firm may not be as high as is usually assumed to be the case.

314_monooly.png

When the MC and AC curves are MC1 and AC1, the price charged is P1 and the output is q1. When the cost curves the lower at MC2 and AC2 a lower price P2 charged and the level of output is higher.

2.  No wastage of resources

 As there is no competition from other firms, the monopolistic firm does not waste resources in product differentiation and advertising in an effort to capture consumers from rival firms.

3.  Price stability

Since the monopolist is price maker, prices under a monopoly tend to be more stable than in competition where they are bound to change due to changes in supply and demand beyond the control of the individual firm.

4.  Research

A monopolistic firm is in a better financial position to carryout research and improve its products than a competitive firm.

Posted Date: 11/28/2012 5:25:35 AM | Location : United States







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