Disadvantages (Limitations/Weaknesses/Negative implications) of Monopoly
- Monopoly firms produce at excess capacity both in the short run and in the long run, They do not fully utilize their resources to the optimal level.
- There is exploitation of consumers. The monopolist may end up restricting output and charging high prices hence exploiting the consumers.
- There is absence of competition which makes the monopoly firm to become inefficient and produce low quality output. This is because the commodity sold by a monopolist has no close substitute.
- Rich monopolies tend to exert pressure on government. They end up influencing decision making in their favor. This is because such monopolies are the major controllers of the economy.
- Limited choice of the consumers. A monopolist does not produce a variety of goods and services to the consumers. This limits the consumers’ choice and welfare.
- There are shortages of the commodity in the economy in case a monopolist stops producing. This leads to structural inflation. Therefore it is dangerous for an economy to monopolize the supply of a given commodity.
- A firm under monopoly may over expand in the long run leading to diseconomies of scales. This is because the firm earns abnormal profits even in the long run.
- It leads to income inequality because a single producer gets richer on the expense of the public.
- it leads to unemployment since a single producer cannot not create enough employment
- It leads to income inequalities. A monopolist charges high prices and earns excessive profits. This leads to income inequalities in the economy as the monopolist will be earning high incomes as compared to producers
- It leads to low output. Under monopoly, there is under employment of resources which leads to the production of low output hence low levels of economic growth and development.
CATEGORIES Economics
TAGS Dr. Bbosa Science
