While monopoly power can be abused, it can also be used beneficially. What are the major pros and cons of largeness in business?
The following pros of largeness are given in the text:
1 . A large firm is more likely to exploit economies of scale. If there are economies in production or distribution, large firms are desired for cost reasons.
2 . A large firm may have the required scale to permit successful innovation. Because innovation is risky, a larger firm with substantial resources is better able to bear the risk than a small firm. If a venture requires substantial money to overcome obstacles in development, a large firm is better able to cover the cost than a small firm.
The following cons of largeness are given in the text:
1 . Monopoly profits create a flow of wealth to those with market power. This may be seen as unfair.
2 . A monopoly may restrict output in pursuit of profit. This is allocatively inefficient.
3 . A monopoly may restrict innovation. Although it has greater resources to conduct research, it also has a vested interest in restricting product/processes. If the monopoly chooses a quiet life, it may restrict innovation.
You might also like to view...
A commercial bank has required reserves of $60 million and the reserve ratio is 20%. How much are the commercial bank's checkable-deposit liabilities?
A. $1,200 million B. $120 million C. $300 million D. $900 million
Suppose that Joan, the only consumer of pork, has a downward-sloping demand curve for pork and faces an upward-sloping supply curve. If her demand curve shifts out because she develops a craving for pork, then at the new equilibrium (everything else equal),
A. the price of pork relative to other goods will be higher than before. B. Joan’s marginal utility from every unit of pork she eats will be higher than before. C. Joan’s real income will be lower than before. D. All of the responses are correct.
In one week Alice can produce 5 pairs of shoes or 4 bookshelves while Roger can produce 10 pairs of shoes or 6 bookshelves. Alice should specialize in the production of
A) shoes. B) bookshelves. C) either shoes or bookshelves. D) neither shoes nor bookshelves.
If the federal funds rate is above the equilibrium federal funds rate, then the supply of reserves would be __________ than the demand for reserves and the banks would try to __________ reserves causing the federal funds rate to fall
A) greater than; lend B) greater than; borrow C) less than; lend D) less than; borrow