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Monopolies and their Costs of Production

Question

Discuss whether all monopolies have low costs of production. In assessing each answer, use the table opposite. Why some have:

Category:

Market Structures and Competition

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Preview Answer

I. 🍃Introduction
- Definition of monopolies
- Importance of understanding why some monopolies reinvest and others do not

II. Reasons why some monopolies reinvest
- May earn high profits
- Small monopolies may have low total costs
- Large monopolies may experience economies of scale
- State-owned monopolies may be subsidised

III. Reasons why some monopolies do not reinvest
- Lack of competition may reduce pressure to keep costs low
- Small monopolies do not benefit from economies of scale
- Large monopolies experience diseconomies of scale/high average costs
- Producing in a country with a high inflation rate

IV. Factors affecting cost of production for monopolies
- Inefficient resource allocation
- Supply constraints
- Labour diseconomies
- Government regulations

V. Ways monopolies can maintain low costs of production
- Benefit from economies of scale
- Spread advertising costs over a large base
- Easy access to loans and reduced supplier costs
- Invest in R&D and new production methods

VI. 👉Conclusion
- Recap of reasons why some monopolies reinvest and others do not
- Importance of understanding the factors affecting cost of production for monopolies.

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