Question

(Intermediate Microeconomics)

Show with a graph how monopolies are harmful to the economy.

Please explain in detail, and show all work/calculations

Answer 1

Disadvantages of a Monopoly : Higher price and lower output than under perfect competition. This leads to a decline in consumer surplus and a deadweight welfare loss or market failure .  A monopoly is allocatively inefficient because in monopoly the price is greater than MC.(P > MC) . In a competitive market, the price would be lower and more consumers would benefit or higher consumer surplus .  A monopoly is productively inefficient because it is not the lowest point on the AC curve, where MC cuts AC ( break even point ) .  S

upernormal profit Qm * (AR – AC ) . So we can clearly say that monopoly is harmful for economy .