I agree that monopolist has control over the market prices and the quantity of goods produced. A monopoly market structure has significant barriers to entry which provides firms with the capacity to dictate prices. The power to control prices allow the firms in the market to set their prices above marginal cost, thereby making super normal profits (Mankiw " Taylor, 2008). Thus, monopoly power to control the market lead to less efficient production and prices in the market. I also agree that perfect competitive firm makes profits by charging prices equals marginal costs. In a perfectly competitive market, there are fewer barriers to entry and prices are determined by forces of supply and demand (Hoag " Hoag, 2008). Thus, firms in a perfectly competitive market can only set price equal to marginal cost. The forces of demand and supply in a perfectly competitive market lead to economically efficient price and quantity of goods.
I agree with the definition provided that deadweight loss that it leads to loss of economic surplus and that it occurs when a market cannot achieve competitive equilibrium. The main reason why deadweight loss occurs in a monopoly market is the tendency of monopoly firms to produce less and charge high prices (Mankiw " Taylor, 2008). The low production and high prices create an imbalance on the demand and supply in the market making equilibrium of good and services not Pareto optimal. The deadweight loss also occurs in a monopoly market because of the lack of motivation to be innovative (Hoag " Hoag, 2008). A monopoly firm produces a unique product and continues to charge high prices without change in quality. The high price charged without improvement in the quality of products make consumers stop purchasing the products resulting in an equilibrium that is not Pareto optimal.
I agree with the argument that profit motives may motivate a monopoly to increase production and lower prices because there is a significant barrier to entry (Hoag " Hoag, 2008). But I believe monopoly may also increase production and thereby lower prices to achieve cost reduction through economies of scale. The economies of scales indicate that per unit fixed cost reduced with increase in output.
References
Hoag, A. J., " Hoag, J. H. (2008). Introductory economics. Singapore: World Scientific.
Mankiw, N. G., " Taylor, M. P. (2008). Economics. London: South-Western Centre Learning.
