Question

In a discussion with some friends a person says that all the monopolies are bad for the economy and therfore all of the monopolies should be broken. Present a case that contradicts this affirmation. Support your idea with a graphic representation (drew the graph and explain what you did). Also, present what polocies you recommend to impose in this market instead of breaking the monopolistic in two or multiple firms (use this graph to support your polices).

Answer 1

Ans

I will argue that this assertion is not right because in some causes like in case of natural monopoly Average cost AC keeps falling as output is expanded by a firm(see figure) . Thus there are economies of scale and two or more firms lead to inefficiency.

I would recommend to use average cost price of the point T where demand curve or AR meets Average cost curve. In such way people will get goods at low price and at the same time firm will not suffer any loss