a) Explain using the above examples why a monopoly is problematic for a given economy or

a government?

Answer:

A monopoly has several disadvantages in a market where it is present, some of which are:

● Output is restricted in the market

● Price is higher than a competitive market
● There is less choice for consumers
● Less consumer sovereignty

Moreover, this all translates to different types of inefficiency, such as:

Technical inefficiency: when a firm is not producing the maximum output from the
minimum quantity of inputs.

Eg: hiring too many employees or using outdated capital, to produce some level of product.
This is a common issue faced by the companies partaking in a monopoly.

Product inefficiency: when the product or a good is not achieved at the lowest possible
resource cost.

This occurs in a monopoly because they produce at an output that is “not at the lowest
possible point” on the average cost (AC) curve. This means that the cost is above what the
minimum could be.

X-inefficiency: this is the difference between the efficient behaviour of firms and the
observed behaviour of firms. This happens in a monopoly due to lack of competition from
other companies.

This happens because the monopolist has no need to adhere to an efficient method of
capital management, or efficiency of the production process. This hurts the product quality
and cost curves overall.

From a government's POV. the most devastating practice of monopoly is obviously that of
price discrimination: which the action of selling the same product to different groups of
buyers at different prices in order to maximize profit.

Price dicrimination can not happen in a heterogeneous market, and is only present in a
monopoly where a firm is producing identical products but selling them at different prices
just to maximize the profits.

a) Reflecting on examples from the article explain how public policy can curb Monopolies?

Monopoly can only be properly countered by introducing monopolistic competition. It can

be defined as follows:

“A market structure where many sellers produce similar, but non identical goods. Each
producer can set price and quantity without affecting the marketplace as a whole”.

This system of competition can only be introduced in a country’s economy by the public
policies such as follows:
● The government should