Pros and Cons of Market Structures

What is a disadvantage of monopolies for consumers?

Monopolies produce at the profit maximisation point, which leads to a loss in consumer surplus.

What is a benefit of perfect competition for consumers?

Firms in perfect competition produce at allocative efficiency, which means that consumer surplus is larger. As a result, consumers are worse off in monopolies.

What is a benefit of monopolies of consumers?

Monopolies can produce cheap, high quality goods because they can reinvest supernormal profits and access economies of scale.

What is a disadvantage of perfect competition for consumers?

Perfectly competitive firms can’t reinvest as they only make normal profits. In addition, they are too small to access economies of scale.

What is a benefit of monopolies for producers?

• They are price markers so firms are able to set prices at the profit maximisation point. As a result, firms are able to exploit consumer welfare to gain large supernormal profits

• Can experience dynamic efficiency

How does dynamic efficiency affect the market position of a monopoly?

Dynamic efficiency enables firms to drive down prices and keep new firms from joining the market. As a result, reinvesting large profits can lead to a strengthening of a firm’s monopoly position.

What is a disadvantage of monopolies

Monopolies can exploit their position to drive competitors out of the market. However, this may lead to complacency and an increase in x- inefficiency. As a result, firms' costs may rise. This in turn could lead to higher prices and the potential loss of the firm's monopoly position.