Productive inefficiency A monopoly is productively inefficient because the output does not occur at the lowest point on the AC curve.(this is net loss of producer and consumer surplus) A monopoly results in dead-weight welfare loss indicated by the blue triangle. In a competitive market, the price would be lower and more consumers would benefit from buying the good. A monopoly is allocatively inefficient because in monopoly (at Qm) the price is greater than MC. Firms with monopoly power can set higher prices (Pm) than in a competitive market (Pc). For example, Tesco market share or Google 90% of search engine traffic.Ī monopoly maximises profits where MR=MC (at point m). In the UK a firm is said to have monopoly power if it has more than 25% of the market share.A pure monopoly is defined as a single seller of a product, i.e.
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