Benefits of Monopoly to Consumers
Study Edexcel Economics monopoly questions by weighing economies of scale, investment and access against high prices, restricted output and weak competition.
- Syllabus
- 2019
- Course
- Economics YEC11
- Level
- A2
Exam points
- Explain how economies of scale may lower long-run average costs and potentially reduce prices for consumers.
- Evaluate whether monopoly profit finances network coverage, investment, innovation or affordable services.
- Balance consumer benefits against high prices, restricted output, weak choice and X-inefficiency.
3.3.3.6d - Costs and benefits of monopoly to firms and consumers question 1
[Maximum number: 20]
By 2017 Ethiopia was one of very few African countries that had not privatised its telecommunications market and introduced competition. Evaluate the likely benefits of a monopoly to its consumers. Illustrate your answer with an appropriate diagram(s).
A monopoly is the sole supplier. Ethio Telecom could exploit economies of scale, lowering long-run average cost and potentially prices, and as a state-owned firm it may be required to provide affordable or subsidised services. Supernormal profits could finance investment in network coverage and new technology, while price discrimination could increase access for lower-income consumers. A monopoly may also keep prices low to deter entry. However, without competition it may charge high prices, restrict output, become X-inefficient and offer less choice or innovation; profits may be distributed rather than reinvested. The benefit to Ethiopian consumers depends on regulation, the firm's objectives, the scale economies available and whether investment actually improves quality and coverage.
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