Pens economic terms why should govermments be concerned abou

Pens economic terms, why should govermments be concerned about monopolies? (you may want to make a comparison between monopolies and competitive markets). Why does it make sense for some monopolies to exist? Please provide examples in your answer. (6 points) words e here to search

Solution

Monopolies generally have one seller and many consumers. There are no close substitutes. The infrastructure and research and developmental costs are very high, the industry has increasing returns to scale, presence of natural resources. There are barriers to entry.

Monopolies are not favored by authorities since they are not economically efficient. In a perfect competition price is equal to marginal cost and firms earn an economic profit of zero. Perfect competition is allocatively efficient. In a monopoly, the price is above marginal cost and the firm earns a positive economic profit. Monopolies produce an equilibrium output where the price of a good is higher, and the quantity lower, and is allocatively inefficient.

Monopolies are essential especially in public utilities like water, electricity since too many producers will be inefficient. The infrastructure cost is very high.