Advantages and Disadvantages of Monopoly’s.

desire, in order to gain a larger abnormal profit.This may be the case, however, firms are not simply able to charge a price they deem fit for the product, since it is constrained by its demand curve. A higher price will result in a fall in demand, and that may subsequently lead to a fall in revenue.The existence of long-run abnormal profits can give the incentive to invest more heavily in research and development.This investment maybe able to bring a better product to the consumer. It may also be able to bring a lower cost to the consumer as eventually the monopoly can use it to give a return on the initial capital cost. The ability to exploit consumers.This would come from high prices charged to the consumer. A monopoly is able to gain abnormal profit in both the short and long run, as long as the firm’s average cost is lower than its average revenue.Predatory PricingBy doing this, prices will be at a low level, so as to defer potential companies from joining the industry as the know that they would not be able to produce at such a low cost, this benefits the consumer, as there is a lower price available.Misallocation of resources, leading to inefficiency.We assume that firms will aim to produce at the lowest possible cost curve, so to maximise profit, but, firms who are not under pressure due to competition, are likely to not produce at the lowest cost curve, and so will become inefficient and the consumer has to foot the bill. The Process of InnovationA new market is formed due to the innovation of one person and this benefits consumers as there is another product available. Monopolists’ best encourage the process of innovation as they can afford to take a long-term research and development programme.Resource cost of keeping a MonopolyHuge advertising and marketing campaigns will be launched so as to make the most of the monopoly from the firm’s viewpoint this will also hopefully lead to consumer loyalty.  Government-bestowed monopolies will be greatly sought after, and this involves help from the government in the form of licences, certificates of convenience and things like patents. Not only does it involve these things, but also a great deal of lobbying and hospitality.  These will cost the firm a huge amount of money, and this cost will get passed on to the consumer in the form of high prices.