Characteristics of monopoly

Question 1

Monopoly definition

Answer 1

• single or dominant firm
• control ss of a gd in the industry
• price setter
• no close substitutes, high barriers to entry and exit, imperfect knowledge

Question 2

Single/dominant producer

Answer 2

• if its the sole producer, then aka industry (largest mkt share)
• sig control over px charged
• price setter
• determine px and qty available to be sold

Question 3

No close substitutes

Answer 3

• unique (PED < 1)
  -consumers no choice but to buy the pdt frm monopolist
• e.g. Microsoft Windows OS

Question 4

High barriers to entry

Answer 4

• obstacles that prevent new rival firms frm entering
• e.g. larger EOS, high initial cost of starting business
  -protects monopolist from comp
• allow monopolist to enjoy supernormal profits in LR

Question 5

Imperfect knowledge of mkt

Answer 5

• consumers do not know how px are determined
• competitors no perfect knowledge of tech/skills required (method of pdtn)
• allow monoplist to set px and max profits