Index
Introduction - 1
Defining A Market - 2
The Importance Of Competition - 3
The Result Of Competition - 4
Intervening In Markets - 5
The Allocative Role - 6
The Distributive Role - 7
The Regulative Role - 8
The Regulative Role (continued) - 9
The Role Of Government - 10
The Role of Government (continued) - 11
The Stabilizing Role - 12
Vertical and Horizontal Integration Defined - 13
Defining Market Structure - 14
How A Firm Can Grow - 15
Mergers and Takeovers - 16
Vertical And Horizonal Integration (Diagram) - 17
Why markets Vary in Structure - 18
Product Differentiation - 19
Product Differentiation (continued) - 20
Free Range ''Googs''- 21
Product Differentiation (continued) - 22
Non Price Competition - 23
Non Price Competition (continued) - 24
Defining The Types Of Market Structures - 25
Perfect Competition - 26
Perfect Competition (continued) - 27
The Market For Oranges - 28
The Market For Oranges (continued) - 29
Bitter Oranges - 30
Summary: Perfect Competition - 31
Monopolistic Competition - 32
True Blue Oranges - 33
Monopolistic Competition (continued) - 34
Oligopoly - 35
Oligopoly (continued) - 36
Oligopoly (continued) - 37
Kinked Demand Curves - 38
OPEC - 39
OPEC (continued) - 40
Monopoly - 41
Microsoft - 42
Why Monopolies Are Inefficient - 43
Revision Questions On Market Forms - 44

Why Monopolies are Inefficient - 43
Monopolists are price makers. Monopolists are still subject to the law of demand. The higher the price they set on their product, the lower the amount that is bought.

It can be shown mathematically that there is a level of production that maximises the profit per unit of a monopolist. In any market, a point is reached where as production rises, the costs of production also rise. That is, additional units of output cost more to produce. This could be due to the fact that the additional labour you hire may not be as efficient or productive as existing workers, or that the quality of raw materials falls, or that when you attempt to buy more of them, their cost rises as these materials become more and more difficult to get.

Economists say that firms will reach a level of production when marginal costs start to rise. As long as marginal revenue (the extra income generated from extra units of output) are greater than marginal costs, a firm in a competitive market will continue producing. Society will have more to consume. (Refer back to ''diminishing returns'').

In a competitive market, production rises to a level where marginal costs equal marginal revenue. In a monopoly, production rises to a level where profit per unit is maximised. After this point, the monopolist will make less and less profit per unit. Why work harder and harder, for less and less?

In a monopoly, the quantity produced of a good is often less than the socially desirable level of production. There has been a misallocation of resources: not enough resources are being used where they should be, and other resources are being underutilised.

It is for this reason that monopolies are seen as inefficient.