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Microeconomics > Chapter 10- Understanding Monopoly > Flashcards

Chapter 10- Understanding Monopoly Flashcards

1
Q

When does a monopoly exist

A

when a single seller supplies the entire market for a good/service

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2
Q

Conditions for a monopolist

A
  1. Must have something unique to sell, no subs 2
  2. . Have a way to prevent competitors from entering the market
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3
Q

Monopoly power

A

A measure of a monopolists ability to set the price of a good or service

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4
Q

BArriers to entry

A

Restrictions that make it difficult for new firms to enter the market

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5
Q

What type of economic profit for monopolosts

A

long run economic profit

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6
Q

Natural barriers

A

Barriers that exist naturally within the market

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7
Q

What are the three types of natural barriers

A

Control of resources, Problems in raising capital, economies of scale

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8
Q

Control of resources

A

Best way to limit competition is by controlling the resource essential in production

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9
Q

Problems in raising capital

A

Hard to start up without huge funds, so it is difficult to enter the market

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10
Q

Economies of scale

A

Occurs when long run average growth galls as production expands.

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11
Q

Effect of economies of scales

A

Low cost and low prices give larger firms ability to drive rivals out of business

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12
Q

Natural monopoly

A

occurs when a single large firm has lower costs than any other competitior

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13
Q

Government created barriers

A

Government enforced statutes and regulations to limit the scope of competition

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14
Q

Two government created barriers

A

Licensing and Patents/Copy right law

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15
Q

Licensing

A

To minimize negative externalities, governments occasionally establish monopolies through licensing requirements

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16
Q

Patents and copyright law

A

The assurance that no one else can play or sell another artists works

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17
Q

Effects of patents and copyright law

A

Economic growth, incentive to innovate

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18
Q

4 Characteristics of monopolies

A

One seller, Product with no subs, High barriers to entry, Price making

19
Q

Main descriptor of a monopoly

A

Price maker

20
Q

Price maker

A

Has some control over the price and what it charges

21
Q

Where does marginal revenue lie on the demand curve

A

MR lies to the left of the demand curve

22
Q

Profit maximizing rule acronym

A

MC=MR

23
Q

Relationship of P and MR in a monopoly

A

P>MR

24
Q

Demand curve for a monopoly

A

Downward sloping demand curve

25
Q

What happens to price when the demand is inelastic and elasticq

A

Inelastic=higher price, Elastic= Lower price

26
Q

Why do Monolpolies use the profit maximizing rule

A

Bc of the downsloping demand, they must search for the most profitable price

27
Q

In a competitive market what is the relationship of MR and P

A

Marginal revenue is less than price

28
Q

3 Problems of a monopoly

A

Results in a inefficient level of output, provides fewer choice for consumers, and encourages firms to lobby for government protection

29
Q

Inefficent output and price

A

Monopolies charge too much and produce too little

30
Q

Rent seeking

A

Occurs when resources are used to secure monopoly rights through political process

31
Q

3 Solutions to problems of a monopoly

A

Breaking up the monopoly, Reducing trade barriers, Regulating markets

32
Q

Antitrust laws

A

designed to prevent monopoly practices and promote competition

33
Q

Reducing trade barriers

A

lessens the influence of a monopoly and promotes the efficient use of resources.

34
Q

Regulating markets

A

Government can allow the monopoly to persist but regulate the ability to charge excessive prices

35
Q

What happens to production when MR=MC

A

Stop production

36
Q

What happens to production when MR>MC

A

Produce more

37
Q

What happens to production when MR<MC

A

less production

38
Q

WHere does the MR curve lie

A

Below the demand curve

39
Q

The output effect refers to

A

change in prices affect the quantity sold

40
Q

when does market failure occur

A

when the output level of the firm is inefficent

41
Q

why are monopolies inefficent

A

They can earn excessive long-run profits

42
Q

why does deadweight loss exist in a monopoly

A

Bc the monopolist charges a price that is above MC

43
Q
A

Microeconomics (2 decks)

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