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Q) indicate, by clicking in the relevant boxes, whether the following statements relating to competition policy are correct or incorrect.
1) Scale economies are an advantage of monopoly and oligopoly.
2) Social cost or externalities are an example of economic inefficiency arising from market failure.
3) Monopoly is discouraged because it can lead to inefficiency and excessive profits.
It is a part (e) of OT case named Link co. in Kaplan kit.
All 3 statements are CORRECT.First of all I really didn’t understand what these 3 statements are trying to say. could you please explain all these 3 statements and also why they are correct ?
This is really knowledge from Paper BT.
Monopolies and oligopolies produce bigger quantities and therefore achieve economies of scale.
An efficient market is where the price of something is determined by supply and demand. Market failure is where this is not happening.
Monopolies have no competitors and lack of competition means there is less incentive to be efficient and they can charge higher prices and make excessive profits.
So how can demand & supply and social cost & externalities can be related with each other ?
I have understand point 1 & 3 but statement 2 is not getting in my head.Because if it is not a free market with competition (and the price is not determined by supply and demand) then there can be a social cost (customers are having to pay more than what would be a fair price and some might therefore not be able to afford it) and external effects (such as, for example, the supplier not being worried about pollution)
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