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C)

I agree that a market dominated by one company, a monopoly, reduces

competition and is bad for both producers and consumers. A
monopoly is commonly explained as a market represented by only
one producer in which output or prices are controlled. Monopolies
bring with them many disadvantages and it is for that reason that
the government aims to prevent their occurrence. There is an
example of a graph showing profit maximization nature of
monopolies bellow. A monopoly maximizes profits where MR=MC. It
sets a price of Pm and quantity Qm.
An argument against a monopolist is
that it can be inefficient. This is a result of profit maximizing at
the point where Marginal Revenue =Marginal
Costs, which means the price exceeds the
marginal and average cost of production.
This shows that a monopolist can be
productively inefficient because it doesn’t aim to
minimize its average costs at the lowest
possible point. And it’s allocatively inefficient
because the high price charged
exceeds the marginal cost ideal to
satisfy
consumer preferences. Therefore
monopolies are not good for customer welfare.
Similarly, impact consumers most commonly know a higher price
negatively. The price-making monopolist at times can price
discriminate. Commodities such as gas carry a high inelastic
demand and enable monopolists to set higher prices, even when the
cost of production remains unchanged. The price rise, therefore,
minimizes consumer surplus. Monopolies are only able to do this is
because of lack of competition from other firms, which means that
they can charge however much they want and
the consumers have no choice but to pay as
the good is inelastic and there are no
other cheaper firms supplying it. This
allows monopolies to make supernormal
profit (shaded green on diagram to the left)
leading to an unequal distribution of income.
This therefore has a negative impact on customer
welfare as the product is inelastic and there
disposable income will reduce.

Another issue arising from a monopolist is that the production of

output can be limited and even when there output isn’t limited they
are rarely productive. This is then believed to have adverse effects
on the performance of an economy. The limitation of output is
because it allows the monopoly is exploit the basic principles of
economics: the less of something there is the more valuable it is.
This means that monopolies can drive up the price of a product
massively in order to maximize profits when the product could in
fact be sold much cheaper if it was produced at the rate it could be.
Monopolies also are rarely productive again due to lack of
competition as there is no incentive to innovate production to
increase efficiency as there is simply no competition and it will have
very little or no impact on sales. This therefore has negative affects
for consumers as they are being charged a price much higher than a
competitive market would demand for it.
The presence of a monopolist also strains competition from taking
place due to its barriers of entry. Certain barriers to entry such as
government licenses are granted to particular monopolists. This
prevents other firms from entering the market and prevents
competition. Barriers to entry prevents other firms from entering the
market and therefore reduces competition that would force the
monopolist to become innovative and productive, both positives to
the consumer. This also very bad for other firms wanting to enter
the market as this prevents them and it is also very bad for
consumers as it prevents competition and thus prevents both the
quality of the product and the price from changing due to
competition.
Monopolies can also be very bad for other firms because of
economies of scale and power over suppliers. Monopolies are often
so large that they can buy huge amounts of materials and resources
at once leading to discounts and better deals that other firms simply
cant afford and costs that the smaller firm will get but the monopoly
will not. They also put in such large orders that they can actually get
exclusive access to a resource or material supplied by a company.
Especially if this resource is scares and rare this can be used as a
barrier to other firms to enter the market as the monopoly controls
that resource that is required to go into competition with them.
In conclusion monopolies have adverse affects on the economy and
are bad for both consumers and producers.