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OPPORTUNITY COST: The highest valued alternative foregone in the pursuit of an activity. This is a hallmark of anything dealing with economics--and life for that matter--because any action that you take prevents you from doing something else. The ultimate source of opportunity cost is the pervasive problem of scarcity (unlimited wants and needs, but limited resources). Whenever limited resources are used to satisfy one want or need, there are an unlimited number of other wants and needs that remain unsatisfied. Herein lies the essence of opportunity cost. Doing one thing prevents doing another.
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                           MONOPOLY, PROBLEMS: Three problems often associated with a market controlled totally by a single firm are: (1) inefficiency, (2) inequity, (3) political abuse. While these problems are typically associated with a monopoly market structure, hence the title monopoly problems, they also relate to oligopoly and monopolistic competition to a lesser degree. Monopoly is a market structure containing a single firm that produces a unique good with no close substitutes. As such, monopoly is a price maker that has complete control over the supply side of the market. And as the only firm in the market, the demand curve facing monopoly is the negatively-sloped market demand curve. The result of monopoly's single-seller status and market control are three notable problems: InefficiencyThe most noted monopoly problem is inefficiency. Market control means that a monopoly charges a higher price and produces less output than would be achieved under perfect competition. In addition, and most indicative of inefficiency, the price charged by the monopoly is greater than the marginal cost of production.Monopoly produces the quantity of output that maximizes profit, like any other firm, by equating marginal revenue and marginal cost. However, because monopoly faces a negatively-sloped demand curve, price is greater than marginal revenue, meaning price is also greater than marginal cost and production is inefficient. Income InequalityA lesser known problem with monopoly is an inequitable distribution of income. To the extent that monopoly earns economic profit, consumer surplus is transferred from buyers to the monopoly. Buyers end up with less income and the monopoly ends up with more. In addition, because price is greater than marginal cost and a monopoly receives economic profit, factor payments to some or all of the resources used by the monopoly are greater than their contributions to production. A portion of this economic profit is often "paid" to the owners of the labor, capital, or land, although not really "earned." To the extent that monopoly is able to maintain single-seller status and market control, income continues to be transferred from buyers to the monopoly and to the monopoly resource owners. And to the extent the overall economy is comprised of monopoly sellers, this redistribution of income can be extensive. Political AbuseA third potential problem, one tied directly to the concentration of income in the hands of the owners of monopoly resources, is the abuse of political power. The monopoly could use its economic profit to influence the political process, especially policies that might prevent potential competitors from entering the market.A monopoly might be inclined to divert a portion of its economic profit to government officials and political decision makers to achieve "favorable" legislation and regulation, such as restrictions on competition from foreign companies. To the extent that monopoly is successful, the problems of inefficiency and inequity are perpetuated. A Little GoodAlthough monopoly is the benchmark for an inefficient market structure, it is not necessarily all bad. There are a few redeeming virtues with monopoly. A monopoly might be inclined to use its economic profit to do good deeds, such as establishing charitable foundations, funding the fine arts, and supporting public education. A number of charitable foundations, theaters, museums, and universities carry the names of monopoly benefactors.In addition, monopoly profits can be and have been used to invest in technological research and development, factory construction, and other capital goods that are intended to expand the profitability of the monopoly, but also promote economic growth economy-wide.
Recommended Citation:MONOPOLY, PROBLEMS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: June 14, 2025].
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BLACK DISMALAPOD
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Today, you are likely to spend a great deal of time waiting for visits from door-to-door solicitors looking to buy either a wall poster commemorating the 2000 Olympics or a flower arrangement with a lot of roses for your grandmother. Be on the lookout for gnomes hiding in cypress trees.
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There were no banks in colonial America before the U.S. Revolutionary War. Anyone seeking a loan did so from another individual.
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"We should never allow ourselves to be bullied by an either-or. There is often the possibility of something better than either of those two alternatives. " -- Mary Parker Follett, management coach
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PSID
Panel Study of Income Dynamics
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