5.4 Monopoly And Monopoly Power

Question 1

Charcteristics of a monopoly

Answer 1

Profit maximisation - supernormal profits in SR and LR
Price maker
Price discrimination
High barriers to entry

Question 2

When does a firm have monopoly power?

Answer 2

When they have over 25% of market share

Question 3

The higher the barriers to entry…

Answer 3

Th easier it is forfirms to maintain monopoly power

Question 4

What are examples of barriers to entry which can maintain monopoly power?

Answer 4

Economies of scale
Limit pricing
Owning a resource
Sunk costs
Brand loyalty
Set-up costs

Question 5

What factors influence monopoly power

Answer 5

Barriers to entry
Number of competitors
Advertising
The degree of product differentiation

Question 6

Disadvantages of monopolies

Answer 6

They can exploit consumers by charging them higher prices
They have no incentive to becoming more efficient
Consumers get less choice than they would in a competitive market

Question 7

Advantages of a monopoly

Answer 7

High profits can be a source of govt revenue through taxation
Generate lots of export revenue e.g. Microsoft does for america
They can exploit economies of scale and have lower ag costs of production
Can be more efficient for only one firm to provide the good or service e.g water