Microeconomics - Monopoly And Monopoly Power

Question 1

What can monopoly power be influenced by

Answer 1

Barriers to entry

Economies of scale

Limit pricing

Owning a resource

Sunk costs

Brand loyalty

Set up costs

The number of competitors

Advertising

The degree of product differentiation

Question 2

Advantages of monopoly

Answer 2

Can earn significant supernormal profit -> invest in more r&d -> can yield more positive externalities -> make the monopoly more dynamically efficient in LR

Can exploit economies of scale

Question 2

Advantages of monopoly

Answer 2

Can earn significant supernormal profit -> invest in more r&d -> can yield more positive externalities -> make the monopoly more dynamically efficient in LR

Can exploit economies of scale

Question 3

Disadvantages of monopoly

Answer 3

Exploit the consumer by charging them higher prices

No incentive to become more allocatively efficient

There is a loss of consumer surplus and a
gain of producer surplus.