Graphs

Question 1

Monopoly

Answer 1

A market structure where a single seller or producer has complete control over the supply of a unique product or service, granting them significant authority to set prices and determine output levels.

Question 2

Barriers to Entry

Answer 2

Factors create obstacles for new firms to enter a market and compete with an existing monopoly.

= high initial costs, economies of scale, legal constraints, and control over essential resources.

Question 3

Price Discrimination

Answer 3

The practice of charging varying prices to different customers for the same product or service, based on their willingness to pay. This strategy enables the monopoly to maximise profits.

Question 3

Market Power

Answer 3

The ability of a firm (monopoly) to influence market prices by controlling the quantity of its output. This leads to a departure from the competitive market equilibrium.

Question 4

Deadweight Loss

Answer 4

The reduction in economic efficiency resulting from a monopoly’s restriction of output and higher pricing compared to a competitive market. This leads to decreases in consumer and producer surplus.

Question 5

Natural Monopoly

Answer 5

A type of monopoly that arises due to economies of scale, where a single firm can produce the entire market output at a lower cost than multiple smaller firms. This often occurs in industries with high fixed costs.

Question 6

Antitrust Laws (Competition Laws)

Answer 6

Government regulations aimed at promoting competition and preventing monopolistic practices. Examples include the Competition Act in the UK and antitrust laws in the US.

Question 7

Innovation Incentives

Answer 7

A potential benefit of monopolies whereby they possess the financial resources and profit motives to invest in research, development, and innovation. However, this can be limited in the absence of competition.

Question 8

Public Interest Theory

Answer 8

A theory suggesting that government intervention in monopolistic industries is justified when it benefits society by promoting competition, consumer welfare, and efficiency.

Question 9

Allocative Efficiency

Answer 9

Achieved when a market produces the quantity of goods where marginal cost equals marginal benefit, resulting in maximum consumer satisfaction. Monopolies often fail to achieve allocative efficiency due to their market power.

Question 10

monopoly economies of scale

Answer 10

mc curve is lower for monopoly than for competitive markets due to greater economies of scale (allocative efficiency-> lower prices, higher quantity demanded)

Question 11

oligopoly