4.2 Monopolies

Question 1

Explain the characteristics of a Monopoly.

Answer 1

• One dominant firm (25%>)
• High barriers to entry
• Low productive and allocative efficiency
• High dynamic efficiency
• Price maker
• Homogenous product

Question 2

Explain Dynamic Efficiency

Answer 2

Dynamic efficiency is when a firm is producing and innovating at the optimum level so that the long run average costs are decreasing. It allows a firm to grow

Question 3

Explain X-Inefficiency

Answer 3

When a firm is not operating at productive efficiency, resulting in higher costs of production. Leads to lower profits and higher prices