2. Market Structures - Monopoly

Question 1

What are the conditions for a monopoly market structure?

Answer 1

1. Single supplier2. Differentiated products3. Price Makers4. Imperfect Information5. Firms profit max. & cons. utility max.6. High Barriers to entry

Question 2

How do the curves etc. differ from in a PC market structure?

Answer 2

The cost curves are exactly the same - the demand curve is now downward sloping not horizontal - this is bc the firm is now a price maker - they can choose what price they charge and the corresponding lvl of demand

Question 3

What sort of profits are made in monopoly market structures l & s-run?

Answer 3

SN profits are made in both l & s-run - firms are able to charge high prices bc they have differentiated products and can stop competition entering the market

Question 4

Is a monopoly market structure alloc., prod., dyn., & x-eff. efficient? (l-run & s-run are the same in a monopoly)

Answer 4

Allocativley Efficient - no, they produce at a lower quantity than MC=MRProductively Efficient - no, production isn’t occurring at the lowest point on the AC curveDynamically Efficient - yes, lots of SN profits for reinvestment X-efficiency - no, lack of competition means costs are higher than they could be