Question

Under what circumstances would a monopolistic firm be economically more efficient than a group of small, competitive firms? If there are such monopolies, what are the drawbacks and how could they be corrected?

Answer 1

In terms of economic efficiency the monopoly is better than group of small competitive firm through PRICE DISCRIMINATION.

PRICE DISCRIMINATION

Price discrimination is the process of charging for different prices for same good in different markets and different consumers.

There are three degree of price discrimination:

1.First degree

2. Second degree

3. Third degree

DRAWBACKS OF MONOPOLY DOING PRICE DISCRIMINATION

1. consumer looses their consumer surplus as they pay higher prices and it get transferred to the producer.

2. scope of bargaining by the consumer is reduced

3. abuse of monopoly power.

Measure to correct the price discrimation is the removal of monopoly from the market.