Disadvantages of monopoly Essay

high damages and lower output Monopolies often mean that prices provide be higher and output lower than is the case for an industry where rivalry prevails. Firms in one industry are producing under conditions of perfect competition, speckle the other firm is operating under conditions of monopoly. The costs of production are the same for each industry. Excess profits High profits do by the monopoliser are not necessarily an indication of efficacious methods of production. The monopolist may, in fact, be using its market power to dress down prices above marginal costs in order to increase its revenues. Higher costs and x-inefficiencies Under competition, firms strive to minimize their inputs to produce a given(p) level of output. Firms do not necessarily have to produce at the minimum efficient exfoliation to be technically efficient, as dour as they produce at the net costs for their given scale of output. Firms which produce on the average cost curve are technically efficient or x-efficient. In other words, they produce at the lowest cost possible given their respective sizes. Competition normally implies that firms allow for be x-efficient.However, if firms are insulated from competition, as is the case for monopoly, then there is little incentive to minimize costs. Firms may instead adopt expense penchant behavior by investing in activities to maximize the satisfaction of senior(a) managers, at the subsequent sacrifice of profitability. Price discrimination Monopolists as sole suppliers can discriminate between different groups of customers ( ground on their respective catchs of demand) separated into different geographic or product segments. A monopolist can practice price discrimination in several(prenominal) ways First-degree price discrimination.Often referred to as perfect price discrimination, this involves the monopolist charging each customer what he or she is willing to pay for a given product. By doing this the monopolist c an increase revenue and gnaw at any consumer surplus which consumers might enjoy. Second-degree price discrimination. The monopolist charges customers different prices based on their usage. In other words, consumers might be charged a high price for initial usage, but lower prices for subsequent units consumed. This oddball of pricing has been used in industries such as electricity, gas, water and telephony. Third-degree price discrimination. In this case, the monopolist separates customers into markets based on different demand shots. Customers with inelastic demand are charged higher prices than those with elastic demand. limiting practices Monopolists often use unfair practices to keep potential rivals out of the market. pull down if rivals are successful in entering the market, the monopolist may discern to eliminate these firms by various restrictive price and non-price strategies such as predatory pricing and vertical restraints. Limited technical progress close to ev idence suggests that technical progress is often slow when a wiz firm or group of firms dominates an industry. As they face no existent competitive pressures, monopolists are under no real pressure to buy the farm any abnormal profits earned on research and victimisation of new product and processes, which is often seen as a risky investment. Consequently, technical progress in these industries is likely to be slow.Reference http//classof1. com/homework-help/economics-homework-help/.