Amonopoly has an advantage over pure competition when it comes to
The Correct Answer and Explanation is:
A monopoly has an advantage over pure competition when it comes to pricing power and market control.
In a competitive market, many firms sell similar or identical products, meaning no single firm can influence the price. This is because, in pure competition, the products are perfect substitutes, and consumers can easily switch from one provider to another without cost. Firms are “price takers,” meaning they accept the market price as given and cannot raise their prices above the equilibrium price without losing customers.
On the other hand, in a monopoly, there is only one firm that dominates the entire market. Since no close substitutes exist, the monopolist has the ability to set prices higher than what would be possible in a competitive market. This is because the monopolist controls the supply of the good or service and can restrict output to raise prices.
Monopolists face a downward-sloping demand curve, meaning they can decrease the quantity of the good sold to increase the price. In contrast, in a competitive market, firms face a perfectly elastic demand curve, meaning that any increase in price would lead to a loss of customers to competitors.
This market power gives monopolies several advantages:
- Higher Profit Margins: Since monopolists can set higher prices, they can often achieve greater profitability compared to firms in competitive markets.
- Reduced Competition: Without competitors, monopolies don’t need to innovate or improve efficiency in the same way that firms in competitive markets do. They can operate with less pressure to keep costs low.
- Economies of Scale: Monopolies can benefit from economies of scale more easily, as they are the sole supplier in the market, which allows them to lower average costs as production increases.
However, this market power can lead to inefficiency and consumer harm, as monopolists may restrict supply to maximize profits at the expense of consumer welfare.
