5.4 Monopoly and monopoly power

Question 1

what is the definition of a monopoly?

Answer 1

one firm only in a market (extreme)

Question 2

what are the characteristics of a monopoly

Answer 2

differentiated products

price maker

high barriers to entry/exit (supernormal profits persist over time)

imperfect information

firm is a profit maximiser (Mr=mc)

Question 3

what is monopoly power

Answer 3

firm has power/potential to act as a monopoly, when one firm has more than 25% control

Question 4

draw monopoly diagram

Question 5

is monopoly allocatively efficient

Answer 5

no as allocative efficiency occurs where price is equal to marginal cost, monopoly chargers price greater than this as p is higher than mc in doing so they exploit consumers (low consumer surplus) and restrict output in the market as quantity should be higher to match demand

Question 6

is monopoly productively efficient

Answer 6

is not productively efficient by not producing at minimum point of average cost curve so forgoing economies of scale

Question 7

is monopoly x efficient

Answer 7

assume waste as they aren’t producing at lowest cost possible, this is because they have become complacent and have no competition to challenge them + difficult to reduce waste and costs so if don’t need to wont

Question 8

is monopoly dynamically efficient?

Answer 8

yes as long run super normal profit is able to be made in the long run (due to high barriers to entry and imperfect information) monopolist can reinvest into new capital, technology, research and development etc.

Question 9

is monopolist statically efficient

Answer 9

no