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Why is some degree of monopoly power permitted in an economy?
Monopolies create dead-weight loss, which is the reduction in the welfare to society that results from an inefficient market. Firms are typically allowed to have some monopoly power one main reason. If firms did not have monopoly power, they would next expect to earn long-run profits. Therefore, they would not have the incentive to invest in research and development since they would not be able to recover these costs. Because of this firms are allowed to have some form of market power so that they have the incentive to innovate, which helps an economy grow in the long run.