What is better for the consumer: A Monopoly, or Perfect Competition?
A Monopoly is a market structure in which only one firm controls the entire market without any close substitutes. In contrast, Perfect Competition is a market structure in which there are thousands of buyers and sellers where all firms are price takers and always make normal profit in the long run. In a monopoly however, because it has barriers to entry they have no competition for their product and firms tend to gain large abnormal profits in the long run which is bad for the consumer, but good for the firm. These barriers to entry are that they have very high Abnormal Profit is when any profit is gained over and above the normal profit level. Normal Profit is when a companies total revenue is equal to its total cost including opportunity cost. This means that consumers pay much more than necessary for their products because the price at which the firm sells them for is much higher than the cost of the actual production of that product. Although, monopolies can also be positive in that when only one firm controls a whole market because this causes economies of scale meaning that the average cost per unit can go down making the goods cheaper to produce meaning a lower price than there could have been had there been more firms producing because their average costs would be higher. Despite some of the disadvantages to consumers when it comes to a monopoly consumers can still profit from the market’s gain. This is because consumers can invest in monopolies and when the market is doing well so are it’s investors.