This research is being submitted on December 2, 2012 for Julia Walker’s G204/ECO2023 Section 01 Microeconomics - Fall 2012
Pareto optimal outcome is one such that no-one could be made better off without making someone else worse off. The concept of Pareto optimality occurs in a number of areas of economics. The allocation of resources in an economy is Pareto optimal, often called Pareto efficient, if it is not possible to change the allocation of resources in such a way as to make some people better off without making others worse off. A perfectly competitive market can be shown to deliver a Pareto optimal allocation of resources. Whether this is the most desirable allocation of resources is matter of a value judgement.
I think that consumers are better off when monopolies break up due to the fact that all firms strive to become Monopolies. All consumers strive towards perfect competition. A main advantage for the firm in a monopoly is that fact that they have power over the prices they charge for their certain good/service. It is a disadvantage to the consumer as there is no competition and therefore no downward pressure on price. If the monopoly were to break up into a couple of firms it would no longer be a monopoly, it would be an Oligopoly market. This is great for the consumers as competition is present which means that products should be better quality and lower in price.
I do not feel that monopolies are really bad for society. One common argument suggesting they are bad is that they make extra profits. And while it is true that they make extra profit. A monopoly can be inefficient if it not able to perfectly price discriminate. If they can't price discriminate, some consumer surplus will be lost without a gain to producer surplus because the producer can't gain a surplus without selling. So, if...