Essay --

(a) Deadweight loss, or as termed in the question, ‘welfare loss’, is the loss of consumer and producer surplus as a result of inefficient market activity, including monopolistic competition. According to the Theory of the Firm, monopoly power includes a much higher barrier of entry, which further impedes competition by increasing the start-up cost, which essentially creates high product prices, compared to the firms, which hold the monopoly power of production, and have already established production. As a result there a loss of productive and allocate efficiency, thus encouraging welfare loss, by decreasing consumer surplus due to limited competition and subsequent monopoly powers, which enable profit-maximization at a small production output, creating a deadweight loss. (b) By using anti-monopoly legislation and price regulations, two different forms of government interventional policies that are utilized to offset the market inefficiency, and subsequent loss of welfare, which monopoly power encourages, governments are able to reduce monopoly power in a sector of economy. The diagram below compares monopolistic competition and perfect competition: As the diagram above illustrates, the monopolistic profit maximization lies at the average market cost, representing a large deadweight loss in the triangle formed by ATC, AR and Monopoly Output. To combat this, reducing welfare loss by increasing output and lowering prices, government intervention may prove an efficient method of solving the problem of monopoly. By legislating anti-monopolistic policies, for example lowering barriers of entry to encourage competition that was previously unsuccessful due to the monopoly-induced high barriers of entry. This would profit companie... ... directly allocates funds to purposes of increase economic development, then they unconsciously limit the growth, which the nation will experience, because the financial resources have been used for secondary purposes. This can be exemplified in several socialists economic measures, such as taxation, transfer payments, indirect taxes, excessive government expenditure, with which the government aims to improve equity and income equality, but at the cost of economic and financial growth. However, taxation and transfer payments, will reduce the utilization of scarce resources of human labour, in the sense that it might limit the individual incentive to work, when the state offers alternative ways of income. This is observed in countries with large taxations, where transfer payment represent a living for many citizens, again with reference to the Scandinavian countries.