The in efficiency of monopoly Essay Example for Free

The in efficiency of monopoly Essay The monopolist produces a lower output and sells it at a higher price than would a compe ve industry† a) Brie? y explain the equilibrium posi? on of the monopolist. Use your analysis to show what is meant by this statement Monopolies are described as Price Makers, and are therefore the theore? cal extreme opposite of a perfectly compe ve %rm. Like perfectly compe ve %rms the Monopolist will seek to maximize pro%t and produce where MC=MR. The monopolist however faces much less compe on if any and therefore can a+ord to restrict output and charge a higher price. In this way The monopolist can earn abnormal pro%t in both the short and long run. In the long run perfectly compe ve %rms are both alloca? vely and produc? vely e-cient. The monopolist is Alloca? vely ine-cient since they do not produce all units up to the point where the social bene%t gained from the unit is equal to its social cost. They restrict their output in order to keep prices high. They produce where MC=MR regardless of the cost to society in terms of dead weight loss or community surplus. They are also produc? vely ine-cient since they Do not operate on the lowest point of the average cost curve. They operate at the pro%t maximizing output of MC=MR. Unlike a perfectly compe ve %rm the Monopolist faces a downward sloping demand or AR curve and a MR curve that is twice as steep. Regardless of monopoly power they must lower their prices to sell more. If they operate at the minimum point on the AC curve pro%ts may fall as prices will have to be reduced to sell this extra output.