Question

Name one problem associated with monopolies, and propose one solution to this problem.

Answer 1

A monopoly will produce at the point where the MR and the MC are equal. The monopoly will be producing at the point where the price if higher than the perfect competitive market and the quantity produced will be lower. They will produce with an excess capacity in the market there will be a dead weight loss in the market.

To solve this problem, the government should set the price ceiling. This will force the monopoly to produce at the point where the price and the marginal cost are equal.