Evaluating A Monopoly

Question 1

Efficiency (2)

Answer 1

They sustain supernormal profits in the long run
They can therefore reinvest = dynamically efficient

Question 2

Why aren’t monopolies demand curve perfectly inelastic (3+)

Answer 2

monopolies cannot charge whatever price they want
Perfectly inelastic implies that no matter how high the price is that the monopoly could charge whatever they want and the QD wouldn’t change
This isn’t true = customers are only prepared to pay so much

Question 3

Are monopolies price setters (2)

Answer 3

Yes and no
Either set the price or set the quantity, but not both

Question 4

Positives for firms (4)

Answer 4

Supernormal profits = investment
Compete against oversees org.
Economies of scale = reduce costs and increase profits
Increased productivity

Question 5

Negatives for firms (2)

Answer 5

Barriers facing new firms = insurmountable
Lack of competition = complacent and inefficient

Question 6

Employees positives

Answer 6

Profit satisficing or sales/rev max = more employed

Question 7

Negative for employees (2+)

Answer 7

Increased productivity = exhaustion
Reduced demand for employees becuase less firms = accept lower wages = inequality

Question 8

Consumers positives (3)

Answer 8

Increased range of goods
Price discrimination = benefits elastic consumers
Economies of scale = increased efficiency and consumer surplus

Question 9

Negatives for consumers (3)

Answer 9

More wealth inequality
Less choice = one firm
Higher prices + poorer quality = reduced comp.

Question 10

Suppliers negatives (2++)

Answer 10

Monopoly buys all supplies = reduced profits for supplier as monopoly reduces prices
Pressure = too scared to refuse amazons (just example) demands for lower prices = if reduce they loose major customer