Theory question 107
Market StructuresSection B: answer four questions only from this section.
Explain the advantages and disadvantages of monopoly.
Show the model answer
Model answer
Advantages: can enjoy economies of scale, lowering costs
Avoids wasteful duplication of services (e.g. public utilities)
Large profits can be used for research and innovation
Government monopolies can provide essential services cheaply
Price discrimination may allow poorer customers to be served
Disadvantages: charges higher prices and produces less than a competitive industry
Consumers have no alternative and may be exploited
Inefficiency, since there is no competition
Poor quality of goods and services
Restricts entry of new firms
Unequal distribution of income through abnormal profits
Explanation
Give at least four advantages and four disadvantages.