51) Monopoly

Question 1

What are the assumptions of monopoly?

Answer 1

1) Large number of buyers and one seller
2) Very good information
3) One product
4) Very high barriers to entry and exit
5) Similar factors of production
6) Few if any externalities

Question 2

What do we mean by a monopoly?

Answer 2

1) One firm in the industry
2) Barriers to entry to prevent competition
3) The firm is a SR profit maximiser (MC = MR)

Question 3

What are the sources of monopoly power?

Answer 3

1) Legal barriers (patents)
2) Sunk costs (advertising)
3) Set-up costs
4) Existing economies of scale
5) Anti-competitive practices (threats to suppliers)
6) Factor of production ownership
7) Brand loyalty
8) Product differentiation

Question 4

What is a discriminating monopolist?

Answer 4

A monopolist who can charge different prices for the same product

Question 5

What is first degree discrimination?

Answer 5

Every customer is charged a different price

Question 6

What is second degree discrimination

Answer 6

Different prices are charged on the basis of volume (e.g. electricity)

Question 7

What is third degree discrimination?

Answer 7

Different prices are charged based on groups (e.g. Gender or age)

Question 8

Who gains when monopolists price discriminate?

Answer 8

Some customers will benefit. Overall the monopolists will benefit by appropriating the consumer surplus.