Define a monopoly and explain its positive and negative impacts on the economy.

A monopoly can be defined technically as a firm with a market share greater than 50%. It is a price setter, achieving abnormal profits in the long run. The firm maintains this abnormal profit in the long run as a result of its market power (e.g. patents) and high barriers to market entry (e.g. high levels of capital required for the production of the good or service sold).On a microeconomic scale, within the domestic economy a monopoly can have a negative impact as a result of allocative and productive inefficiency. The monopolistic firm does not produce at the most efficient or optimal level that would benefit the market as a whole. Consumers are charged higher prices and therefore we see a welfare loss. On the other hand, a monopoly can be beneficial to the economy as it would allow greater research and development as abnormal profits can be reinvested. A limitation of this argument is the fact that there will be a lack of incentive for monopolistic firms to reinvest abnormal profits as there is very little/no competition. A monopoly can be beneficial to an economy on a global, macroeconomic scale as larger production by a singular firm allows for the economies of scale to be benefitted from, meaning that the monopolistic firm will be able to compete on the global market where larger, multinational corporations would have undercut their prices otherwise.