Explain some benefits of a Monopoly

A monopoly is where the market and one firm are coextensive.It has a downward sloping demand curve due to product differential. One key feature is that it has high barriers to entry. This means that it is able to profit maximise in the short and the long run. This means that a monopoly will produce at the output where marginal cost=marginal revenue. This is because each unit of output gives more revenue/ equal revenue to the firm that the cost of producing the individual unit. This leads to abnormal profits in the short run and in the long run because high barriers to entry means there is no threat of competition. This means that there is dynamic efficiency is available in the long run. As a result monopolies can use its abnormal profits to undertake research and development. Then the overall quality of the product will increase, leading to a increase in consumer surplus and therefore a benefit to the consumer

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Answered by Satya V. Economics tutor

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