While monopoly power can be abused, it can also be used beneficially. What are the major pros and cons of largeness in business?
What will be an ideal response?
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. |
| 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. |
Economics
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