There are several important factors regarding to the economic effects of monopoly. The first factor is the price-output combination between pure monopoly and perfect competitive industry. First of all, a pure monopoly is considered to be known as a price maker which means that they have complete control over the price or the amount of quantity that they sell, thus price must be lowered in order to sell more quantity on the market since they do set their own market price. Therefore, if the price for a product decreases overtime, then the quantity supplied (market supply) for that specific product will increase in order to return to its original equilibrium at the level of output where marginal revenue equals marginal cost.
For instance, …show more content…
Productive efficiency occurs when goods or services with optimal input to produce superlative output which forces entry and exit firms to operate where average total cost is at minimum. As for allocative efficiency, it occurs when the price that each consumer is willing to pay for it is the same as the marginal utility of the product that they get. Therefore, when marginal utility equals the marginal cost then resource allocation is …show more content…
In addition to cost complications, there are four reasons why these costs occur. The first reason is economies of scale (large-scale production), which occurs when the market demand is not sufficient to support a large number of competing firms that are producing on a minimum efficient scale. Also, economies of scale are also being referred to as the situation where costs of producing an increased output of a unit of a product decrease as the volume of the output increases. Nonetheless, economies of scale also occur when equal percentage of all increases in input can lead to greater output.
The second reason for cost complications in relation to unit cost of production is X-inefficiency. X-inefficiency takes place when a firm produces output at a higher cost than it is necessary to produce it. The reason for that is because firms absolutely cannot maximize profits unless they are minimizing costs. For example, DeLorean Motor Company experienced X-inefficiency when they weren’t able to find the cheapest suppliers to obtain raw material from. Instead, they had to seek out raw materials from a very costly supplier in order to build a new
For instance, …show more content…
Productive efficiency occurs when goods or services with optimal input to produce superlative output which forces entry and exit firms to operate where average total cost is at minimum. As for allocative efficiency, it occurs when the price that each consumer is willing to pay for it is the same as the marginal utility of the product that they get. Therefore, when marginal utility equals the marginal cost then resource allocation is …show more content…
In addition to cost complications, there are four reasons why these costs occur. The first reason is economies of scale (large-scale production), which occurs when the market demand is not sufficient to support a large number of competing firms that are producing on a minimum efficient scale. Also, economies of scale are also being referred to as the situation where costs of producing an increased output of a unit of a product decrease as the volume of the output increases. Nonetheless, economies of scale also occur when equal percentage of all increases in input can lead to greater output.
The second reason for cost complications in relation to unit cost of production is X-inefficiency. X-inefficiency takes place when a firm produces output at a higher cost than it is necessary to produce it. The reason for that is because firms absolutely cannot maximize profits unless they are minimizing costs. For example, DeLorean Motor Company experienced X-inefficiency when they weren’t able to find the cheapest suppliers to obtain raw material from. Instead, they had to seek out raw materials from a very costly supplier in order to build a new