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Assess the Advantages and Disadvantages of Government Intervention to Abolish Monopolies

In: Business and Management

Submitted By Miles3
Words 417
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There are various ways in which governments can intervene to abolish monopolies. A monopoly can be used in different ways and there are two types of monopoly. A monopoly is a market dominated by one firm whereas a pure monopoly is one firm only in a market, an example of a monopoly would be Microsoft.
Governments abolishing monopolies enable firms to compete with one another; this therefore increases businesses and allows more firms in a market. By abolishing monopolies it could increase smaller firms to increase in size, by doing so would create more job applicants leading to less unemployment and by a firm increasing in size, the average total cost per unit to make would decrease. We can demonstrate this by using an average total cost curve.

Another advantage would be that monopolies often produce goods and services at a small level and price it high, monopolies can do this because the lack of competitors in the market, so by eliminating the monopoly, the goods and or services will be produced at a high quantity and prices will be set lower.
Although abolishing a market can have its positives to other, smaller firms but it also comes with disadvantages. With multiple firms in the market both operating at the productively efficient point they become perfect substitutes for one another causing firms to lower their prices in order to compete with the other firms. By doing this they hope to achieve an incentive to the consumer in order for them to consume their goods or services but often firms are reluctant to do this because often the costs to produce the goods or services outweigh the revenue and therefore decreasing profit to a minimal or even in some cases, the firm will make a loss.
Another disadvantage for the government intervening to abolish monopolies is that only one firm can operate at economies of scale fully, this leads to one firm...

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