3.4.5 Monopoly

Question 1

What does N-firm concentration ratio measure ?

Answer 1

This measures how much market share the N largest firms in a market have

Question 2

How do you work out the N-firm concentration ratio ?

Answer 2

First you identify the N number of the largest firms in the market and then you add up their market shares

Question 3

What is a monopoly ?

Answer 3

This is where there is only one firm in the market

Question 4

What is the difference between pure monopolies and legal monopolies ?

Answer 4

Pure monopolies is when only one firm has 100% market share and a legal monopoly is when firms control over 25% market share

Question 5

What are three assumptions on monpolies ?

Answer 5

1) only one firm with 100% market share
2) firms are profit maximisers (mr=mc)
3) high barriers to entry

Question 5

What are three assumptions on monpolies ?

Answer 5

1) only one firm with 100% market share
2) firms are profit maximisers (mr=mc)
3) high barriers to entry

Question 6

What is monopoly market power ?

Answer 6

This is when the monopoly is able to set the price and output levels

Question 7

How many barriers to entry are there in a monpoly ?

Answer 7

5.

legal barriers, sunk costs, economies of scale, brand loyalty, anti competitive

Question 8

What do legal barriers include and what do they do ?

Answer 8

They include patents, copyrights and trademarks. This stops new firms from using ideas of an incumbent firm (currently in market)

Question 9

How will companies use patents as a legal barrier ? what is an eval to this

Answer 9

This will give them the right to exclude other making, using or selling an invention of theirs. This stops others from importing, selling and copying your invention without your permission

Firms can only have patents for short periods of time

Question 10

How will companies use copyrights and trademarks as a legal barrier ?

Answer 10

Copyrights give the right to copy and distribute a creatvie work for a limited amount of time. Without these rights other firms cannot use their products or make similar.
Trademarks are any famous words, phases, symbols, designs that indentifies with your goods and services

Question 11

What are sunk costs ? and give examples

Answer 11

These are costs which cannot be recovered if a firm leaves the market. For example specialist machinery. As it is made specific to a company production other firms cannot use it and they will not be able to sell it and not recover that sunk cost
Another example is advertising

Question 12

How do sunk costs act as a barrier to entry ?

Answer 12

It deters new firms from entering as there is a high cost of failure if there are high sunk costs. If firms fail they cannot recover any sunk costs.

Question 13

What are economies of scale ?

Answer 13

These are proportionate savings in costs gained by an increased level of production. AC per unit goes down with an increase in output.

Question 14

How do economies of scale act as a barrier to entry ?

Answer 14

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For instance, if a big company like intel used technical economies whereby they specialise into tech to produce at cheaper prices. They will be able to keep prices and costs low compared to smaller firms who produce a lot higher price

Question 15

How does brand loyalty act as an barrier to entry ?

Answer 15

Strong branding a loyalty from incumbent firms (currently in market) makes it impossible for new firms to make any sales. Loyal consumers

Question 16

What are anti competitive practices ?

Answer 16

These are anything a firm may do to reduce or restrict competition.

Question 17

How do anti competitive practices act as a barrier to entry ?

Answer 17

for example, if electricity producers acquires a power grid to deliver electrivity to consumers. They are vertically integrating forwardly (same industry different prod process). They act as a barrier to entry for other electricity producers as they can know prevent competitors firms from entering the market and refuse to let them use the scare resources being the power grid

Question 18

How do you draw a monopoly graph ?

Answer 18

This is a normal cost revenue diagram where profit maximisation is their main objective