The advantages and disadvantages of monopoly
A monopoly can harm consumers by raising prices and reducing choice. But it can also benefit the economy by funding innovation that smaller competing firms could never afford.
Formula
Deadweight Loss = ½ × (P_monopoly − P_competitive) × (Q_competitive − Q_monopoly)
Real World
Thames Water, as a natural monopoly, charges customers prices well above competitive levels because households cannot switch supplier — illustrating higher prices and reduced consumer surplus in a real regulated market.
Exam Focus
For 'evaluate' questions, always counter disadvantages with the dynamic efficiency argument — examiners expect a balanced judgement.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?