According to Adam Smith, the monopolies generally tend to seek out ways to increase their profits even at the expense of consumers, and, in doing so, generate more costs to society than benefitsTl1 . A monopolist has the power as a price maker as it has little to no competition in the market and will try to achieve the profit maximizing output at Marginal Cost (MC) = Marginal Revenue (MR). This causes the monopoly price to be higher than the average and marginal cost of production leading to a loss in allocative efficiency and a failure in the market. According to general equilibrium economics, a monopoly can create a rigid demand curve, restrict supply and cause deadweight loss to the economy. It causes market failure due to the under provision and the increased price of a market good. The increased price causes a loss in consumer surplus and a gain in producer surplus as displayed in figure 1 and 2 below, where figure 1 shows a firm competing in a perfectly competitive market and figure 2 is the market under a monopoly.


We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now