Market Structures - Monopoly Flashcards
Number of firms likely in a monopoly market?
A market dominated by one or a handful of firms
What’s the nature of product available to a consumer in a monopoly?
Branded products
Are there significant barriers to entry in a monopoly?
Entry barriers important in protecting market power
How strong is the individual power of individual firms in the market of a monopoly?
Strong pricing power including the power to discriminate
What is the potential to earn supernormal profits in the long run in a monopoly?
Supernormal profit is maintained by entry barriers and regulations
What is the likely outcome of allocative efficiency in a monopoly?
Price>MC therefore not allocatively efficient
What is the likely outcome of product efficiency in a monopoly?
Scope for economies of scale in the case of a natural monopoly
What is a working monopoly?
A working monopoly is any firm with greater than 25% of the industries’ total sales.
What is a dominant firm?
A dominant firm is a firm that has at least 40% market share.
What is the aim of firms in a monopoly?
To maximise their profit levels.
What is a natural monopoly?
A natural monopoly occurs when a large business can supply a market at a lower price than smaller ones. A natural
monopoly is a situation in which there cannot be more than one efficient provider of a good.
Define the term price discrimination?
Price discrimination is when a business charges different consumers different prices for the same good or service.
Give three aims of price discrimination?
- To increase total revenue by extracting consumer surplus and turning it into producer surplus
- To increase market share and build customer loyalty
- To make more efficient use of a firm’s spare capacity
