4.4 Micro

Question 1

What are the characteristics of a monopoly?

Answer 1

Is the only firm in the industry. Therefore, the firm is the industry
This means that the firm’s demand curve and the market demand curve are the same
The demand curve is also the average revenue curve
Aims to profit maximise

Question 2

What kind of profit does a monopoly make?

Answer 2

Supernormal

AR is greater than AC

Question 3

What is a geographical monopoly?

Answer 3

Due to climatic or geological reasons, a particular country or location is the source of supply of a raw material or foodstuff
E.g. a small shop in the countryside

Question 4

What is a patent?

Answer 4

Patents and other forms of intellectual property rights give businesses, writers and musicians exclusive right to innovations or creative work for several years and sometimes decades, though the right may be difficult or impossible to enforce

Question 5

Name some legal barriers

Answer 5

Patents, copyrights and trademarks, gives an individual or firm a monopoly on a new product or process

Question 6

How does advertising affect markets?

Answer 6

Firms invest heavily in advertising their products in order to create awareness and deter new entrants into the market
Advertising will increase fixed costs and therefore increase the scale of production at which a firm needs to operate profitably
Effective advertising will lead to an increase in the level of profit for a monopolist