Answer to Question #149570 in Economics of Enterprise for Mia

Question

Discuss whether the quality of products is likely to be higher in a monopoly or in a perfectly competitive market

Answer 1

A monopoly can earn higher profits some of the higher profits could be spent on research and development.

A monopoly knows it can protect any profits it makes due to high barriers to entry and exit. This may encourage it to produce high quality products. 

A monopoly may enjoy economies of scale including R & D economy.

A monopoly may lack competitive pressure to produce a good quality product. Consumers may still buy the product even it is of a poor quality as they have no choice.  

A monopoly may experience diseconomies of scale management problems. Poor industrial relations may result in lower quality products.