It is alright to say that monopolies have a rather poor reputation amongst both us consumers also the political entities we elect to safeguard out interests. Monopolies in fact have number of advantages-sometimes outweighing the disadvantages.

As the monopoly restricts output and raises the price, the producer gains at the expenses of the consumers. This loss of consumer sovereignty if the mist noticeable negative effect of monopoly market situations; consumers ‘pay more for less’. Due to the fact it is an monopoly firm the firm will face higher prices and lower output. It follows common sense that a firm whish can affect but not demand will set a price which will optimize profit by a way of increasing the marginal cost and firm’s cost. To do this firms restrict output and set the price above marginal costs. We have to keep in mind that the MC curve is the sum total of all PCM firms in ‘MC curves’ which means that the supply curve for both competitive and monopoly are not the same.

PCMMonopoly 01Here you can see the difference the two firms have. You can easily determine the advatages a monpoly firm have over a perfectly competitive market! There are three main areas where the monpoly can prove itself superior to teh perfestly competitive firm.

Economics of Scale:When there are very large fixed/initial costs and a very large potential for economics of scale based on technological gains, a monopoly might have well a profit point. Leads to a lower price and a higher output than a PCM! Profitmax is when the monopoly enjoys an abnormal profit! This is when MC=MR.

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