With the aid of a diagram show that the monopoly will never produce any socially desirable outcome
Answers
Definition of 'Monopoly' : A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute. ... He enjoys the power of setting the price for his goods.
there are four basic types of market structures in traditional economic analysis: perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a structure in which a single supplier produces and sells a given product.
graph of monopoly is attached that shows that monopoly never produces
socially desirable outcome
marginal revenue :MR, average revenue : AR, demand curve: DC, market demand : D. Fig. 9.1 plots AR and MR curves .
Demand curve is a straight line in nature; in this case MR curve has twice the slope of the demand curve slope.
Output Decision of a Monopolist:
What quantity should the monopolist produce?
If the objective of the monopolist targeted to maximize profit, a firm must produce output in such a manner that MC = MR.
This is the solution to the monopoly problem.
In Fig. 9.2, the market demand curve, D, is the presentation of a curve showing average revenue which specifies the unit price that the monopolist receives at a function of its output quantity.Also presented here are MR, AR and MC curves and ACC.
MR = MC at Q* output quantity and from the demand curve, we find the price P* that corresponds to this quantity Q* which is the profit-maximizing quantity.