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Assessing Monopoly

24 April, 2015 - 11:52

Learning Objectives

  • Explain and illustrate that a monopoly firm produces an output that is less than the efficient level and why this results in a deadweight loss to society.
  • Explain and illustrate how the higher price that a monopoly charges, compared to an otherwise identical perfectly competitive firm, transfers part of consumer surplus to the monopolist and raises questions of equity.
  • Considering both advantages and disadvantages, discuss the potential effects that a monopoly may have on consumer choices, price, quality of products, and technological innovations.
  • Discuss the public policy responses to monopoly.

We have seen that for monopolies pursuing profit maximization, the outcome differs from the case of perfect competition. Does this matter to society? In this section, we will focus on the differences that stem from market structure and assess their implications.