3.4.5 - Monopoly Flashcards
What is a monopoly ?
This is when a firm has over 25% of the market share in that market
What are the assumptions to a monopoly ?
- There is a single seller of a good
- There are no substitutes for the good, either actual or potential
- There are barriers to entry into and out of the market
- The firm aims to maximise profits
How do the characteristics of monopoly differ from perfect competition ?
- Many sellers in perfect competition
- Homogenous goods in perfect competition
- No barriers to entry and exit in perfect competition
What similarities does a monopoly have with perfect competition ?
Profit maximisation
What is the demand curve like in a monopoly ?
Downward sloping
What is the Demand curve equal to for a monopoly ?
AR
Is the firm a price maker or a price taker in a monopoly ?
Firms are price makers in a monopoly
Where is the profit maximising point for a monopolist ?
Where MR = MC
If firms see a monopoly making supernormal profits can they enter the market ?
No they will be unable to enter the market due to the existence of barriers to entry, unlike a perfectly competitive market
What does the size of profits depend on for a monopoly ?
It depends on the relative position of the market demand curve and the position of the cost curves
What happens if the cost curves are above the demand curve ?
The monopoly will incur losses
How does a monopoly benefit if there is an increase in demand for its product ?
They can make higher profits as the MR and AR curves will shift to the right and they can therefore charge a higher price
