Economics · Competition, monopoly and market structures · 10 marks
Assess the view that monopoly is always worse for consumers than perfect competition. [15]
Mark scheme
- Diagram: monopoly producing where MC = MR, with price above MC and above the competitive price
- Allocative inefficiency: P > MC, so the socially optimal quantity is not produced
- Productive inefficiency: output is not at minimum AC
- Loss of consumer surplus, transferred to the monopolist as supernormal profit, plus a deadweight welfare loss
- Evaluation: economies of scale may make long-run average cost lower than in a fragmented industry, so price may actually be lower
- Evaluation: supernormal profit can fund research and development, giving dynamic efficiency and better products over time
- Evaluation: a natural monopoly avoids wasteful duplication of infrastructure
- Evaluation: contestability — the threat of entry may discipline pricing even with one firm
- Evaluation: regulation (price caps, RPI − X) can capture the scale gains while limiting the pricing harm
- Judgement: depends on the extent of economies of scale, barriers to entry, and the quality of regulation
Fifteen-mark questions are assessed mostly on evaluation and judgement. Two or three well-developed evaluative points beat six listed ones, and the conclusion must answer "always" rather than restate the essay.