Market Structures - Monopoly & Monopolist

Question 1

Draw the short run equilibrium position of a firm in a monopolistic market and indicate on the diagram where the firm operates and the level of profit earned. Explain your answers.

Answer 1

https://gyazo.com/ebb34d788045580e7fa377de8c4a78ce

Question 2

In the space below, draw a labelled diagram to represent the long-run equilibrium position of a firm in monopolistic/imperfect competition. Explain your diagram.

Answer 2

https://gyazo.com/b3198340d6279855d52eb3d52df4a183

Question 3

Outline three characteristics (other than many sellers) of a firm operating in monopolistic competition

Answer 3

1. There are many buyers
   An individual customer, by their own actions, cannot influence the market price of the food on offer at restaurants.
2. Each firm seeks to maximise profits
   The aim of each company is to maximise profits, to do this they produce the quantity where MC = MR
3. Reasonable knowledge regarding profits
   Everyone is assumed to have reasonable knowledge as to the profits made by other firms, consumers have reasonable knowledge of the prices being charged.

Question 4

Firms operating in a monopolistic competition waste resources. Do you agree or disagree with this statement? Explain

Answer 4

Agree:

It does not produce at the lowest point of average cost, so they are not minimising their costs. This may be due to spending by the firm on advertising its products or the firm does not produce a sufficient quantity to benefit from economies of scale.

Question 5

Explain, with the aid of a fully labelled diagram (including the axes), the long run equilibrium of a firm operating in monopolistic competition.

Answer 5

https://gyazo.com/4fe64caabd0cf7f90970626c401f8219

Question 6

Outline two possible economic advantages to consumers of monopolistic competitive markets

Answer 6

1. Consumers benefit from increased choice
   Differentiation creates diversity of goods for consumers and they benefit from having more choice / potentially lower prices.
2. Normal profit
   As firms earn normal profit in the long run, consumers are less likely to be exploited by higher prices.

Question 7

Outline an advantage of the monopoly market structure

Answer 7

Economies of scale:
Production on a large scale may help the firm benefit from economies of scale and these cost savings may be passed on to the consumer in the form of lower prices.

Question 8

Explain one benefit for employees of a firm possessing significant monopoly power

Answer 8

Secure employment:
As there is no competition from other firms employees have greater security of employment

Question 9

Draw the short run equilibrium position of a monopoly firm, indicate where the firm operates and the level of profit earned, and explain if the firm is efficient with reference to the diagram.

Answer 9

https://gyazo.com/b45214f257dc7b5c3d7b0affe8ac30ca

Question 10

Explain two reasons why monopolies may not be in the publics interest

Answer 10

1. Higher prices
   Monopolies can charge higher prices, compared to perfect competition, because there is no competition.
2. Lack of innovation
   The lack of competition means that a Monopolist does not have to innovate or develop new products or services.

Question 11

State and explain two barriers to entry for firms wishing to enter a monopolist industry