Why the existence of monopoly and monopoly power can lead to market failure
A monopoly is a market dominated by one firm. That firm can charge higher prices and produce less than is best for society, causing market failure.
Formula
Deadweight Welfare Loss = ½ × (Pm − Pc) × (Qc − Qm)
Real World
Google's dominance in search advertising — holding over 90% UK market share — allows it to charge advertisers prices well above competitive levels, reducing output and creating allocative inefficiency.
Exam Focus
Always show a monopoly diagram with Pm > MC at profit-maximising output to illustrate allocative inefficiency and deadweight welfare loss.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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