tutor2u | Key Diagrams - Monopoly and Productive Efficiency

Student Videos

Key Diagrams - Monopoly and Productive Efficiency

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 14 May 2022

In this video we walk through a diagram about what happens when a monopoly supplier is able to achieve significant economies of scale.

Key Diagrams - Monopoly and Productive Efficiency

One of the potential advantages of monopoly is that a dominant firm can achieve significant internal economies of scale that mean the average cost of supplying to the market is lower than if the market was fragmented with lots of smaller competing businesses. In theory, if the scale economies are large enough, the profit maximising monopoly price might even be a little lower than the competitive equilibrium price leading to higher consumer surplus (in other words, a gain in economic welfare).

It takes very large economies of scale for this effect to happen – so perhaps revise the economics of a natural monopoly as part of your revision. In evaluation, the lack of competition might lead to a monopolist experiencing X-inefficiencies arising from low productivity and rising fixed costs that are independent of output.

Recommended

Exam support for 2022

Online Grade Booster Courses for A-Level Exams in May & June 2022

Exam technique, advance information support, live revision and more from the tutor2u subject specialist teams

Enrol now

© 2002-2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.