Answer to Question #292279 in Macroeconomics for Luit

Question

Here are 5 monopoly-related essay titles. How might you answer each one so that you specifically answer the question set?

• Discuss the view that all monopolies are bad for consumers
• Assess the extent to which monopolies are bad for the economy
• Evaluate whether all monopolies should be heavily regulated
• To what extent is a monopoly likely to reduce economic welfare?
  
• Assess the extent to which monopolies are beneficial

Carefully explain what is meant by a natural monopoly, remembering to add in relevant examples. Draw a natural monopoly diagram in the space at the bottom of the page.

Diagram:

Outline some of the issues facing a natural monopoly firm if it chooses to maximise its profits:

Outline some of the issues facing a natural monopoly firm if it is nationalised / run by the state and aims for allocative efficiency:

Answer 1

1)Monopolies are bad for consumers because they can constantly raise prices

2)Monopolies are bad for the economy, so monopoly power destroys competition

3)Monopoly reduces welfare, since unlimited price increases and the presence of monopoly power can adversely affect the welfare of citizens and other companies.

4)Monopolies are beneficial to the state, since such industries as railway transport, the oil industry will be giants and bring significant taxes to the state

Outline some of the issues facing a natural monopoly firm if it chooses to maximise its profits:standard technological limitations, consumer behavior