Thursday, November 21, 2019

A)Show that, compared to perfect competition, monopolies reduce output Essay

A)Show that, compared to perfect competition, monopolies reduce output and increase price. Does this mean that monopolies are always against the public interest - Essay Example It looks for a price on the market demand curve that will maximize its profits- both in the short run and the long run. Unlike the perfect competition, the monopolists marginal revenue from each unit is not constant (Samuelson, 2010). The table below shows that the demand increases as the price decreases-the basic downward sloping demand curve. However, the marginal revenue decreases as each unit of output is increased. Therefore, the monopolist raises the price and restricts output to maximize its returns (Samuelson, 2010). Similarly, the monopolist will produce the number of units when its marginal cost is equal to the marginal revenue. This signifies that the there will be always be more demand than there will be supply to maximize the profits. (Samuelson, 2010) Monopolies act against the public interest at large because they are productively inefficient, cause a welfare loss and earn exorbitant profits. Similarly, they control the price as well as the output to a certain extent; thereby injuring the public at large. However, there are arguments that monopolies help achieve economies of scale and help reduce per unit cost and maintain a high level of innovation to keep the demand curve stable. (Snook, 2013) Snook, A. Is the Existence of Monopoly Against the Public Interest. Retrieved from on March 24,

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