Is Monopoly Price a High Price?
Nul Ill Clozaril). We have seen that monopoly power enables a monopolist to restrict his output and charge a price higher than the marginal cost. Competitive price, however. tends to equal the marginal cost. This. however, docs 1i0 Mean that monopoly price is necessarily and invariably higher than competitive price. Several influences may keep the monopoly price down and in some cases may bring it to a level lower than what-is would he under competition.
the monopolist may he able to produce an artide at a lower cost per unit on account of the exceptional advantages that he may enjoy as regard the scale of production. in advcrt ismg, marketing expenses and other overhead charges, Thus, even though he may charge a price higher than him own marginal cost, it may be lower than what would be the marginal cost under competition. This is the ease especially with industries using large and expensive indivisible equipment, and the demand for the products of which is elastic. Expansion of output in such industries reduces cost per unit, and larger output can he ~oIJ nt remunerative, though low, prices. Normally. however. monopoly price i1>rarely lower than the price under competition. But this docs not mean the monopoly price is inordinately a high price. As we shan see below, there arc serious limitations on the power of a monopolist. He is not always able to charge price which would theoretically maximize his profit. Apart from the fact that the monopolist may be ignorant of the level of the price. which
gives him maximum returns due 10 difficulties of assessing the factors involved, there are certain considerations which few monopolist can ignore. Conclusion. Out in spite of these restraining inFluences, monopoly prices are generally higher than the competitive prices. Our conclusion is thaI the monopolist is in a position to charge less, but he docs not. Monopoly price tJl need not be higher. hut it actually i