Module 6

Question 1

Monopoly

Answer 1

Definition: A market with one producer that controls the entire supply of a good or service.
Key Point: Faces a downward-sloping demand curve

Question 2

Barriers to Entry

Answer 2

Definition: Factors preventing new competitors from entering a market.
Examples: Patents, high startup costs, economies of scale

Question 3

Natural Monopoly

Answer 3

Definition: A monopoly arising from economies of scale, where a single firm can supply the entire market more efficiently.
Example: Utility companies

Question 4

Legal Monopoly

Answer 4

Definition: A monopoly created by laws prohibiting competition.
Example: U.S. Postal Service

Question 5

Profit Maximization for Monopolies

Answer 5

Rule: Produce where MR=MC.
Key Point: Price is determined from the demand curve at this quantity​

Question 6

Marginal Revenue (MR)

Answer 6

Definition: The additional revenue from selling one more unit.
Formula: MR=ΔTR/ΔQ
Key Point: For monopolies, MR<Price due to the downward-sloping demand curve​

Question 7

Allocative Efficiency in Monopolies

Answer 7

Definition: Not achieved because P>MC. Monopolies produce less and charge higher prices than socially optimal​

Question 8

Intellectual Property as a Barrier

Answer 8

Definition: Legal protections like patents, copyrights, and trademarks that restrict competition​

Question 9

Monopolistic Competition

Answer 9

Definition: A market structure with many firms selling similar but differentiated products.
Example: Restaurants

Question 10

Product Differentiation

Answer 10

Definition: Making a product distinct through physical features, location, or brand perception.
Key Point: Allows some pricing power

Question 11

Short-Run Profit Maximization

Answer 11

Rule: Produce where MR=MC.
Key Point: Firms can earn profits or losses in the short run​

Question 12

Long-Run Equilibrium

Answer 12

Key Point: Entry and exit of firms drive profits to zero in the long run.
Result: Firms earn normal profit, P=ATC, but P>MC, so allocative inefficiency persists​

Question 13

Advertising and Branding

Answer 13

Role: Used to increase demand and differentiate products.
Key Point: Common in monopolistic competition​

Question 14

Oligopoly

Answer 14

Definition: A market dominated by a few large firms.
Example: Airlines, soft drinks

Question 15

Collusion

Answer 15

Definition: Firms agree to restrict output and raise prices, acting like a monopoly.
Key Point: Illegal in many countries but can lead to higher profits

Question 16

Cartels

Answer 16

Definition: Formal agreements between firms in an oligopoly to collude.
Example: OPEC

Question 17

Game Theory

Answer 17

Definition: Study of strategic decision-making among competitors.
Key Concept: Prisoner’s Dilemma shows why firms may struggle to sustain collusion​

Question 18

Price Wars

Answer 18

Definition: Fierce competition through price reductions, common in oligopolies.
Key Point: Can drive profits to zero

Question 19

Kinked Demand Curve

Answer 19

Concept: Explains price rigidity in oligopolies.
Key Point: Firms match price decreases but not increases

Question 20

Efficiency in Oligopolies

Answer 20

Key Point: Oligopolies are often less efficient than perfect competition but more competitive than monopolies​