Monoply

Question 1

Pure monopoly

Answer 1

A market with one seller,firm with 100% market share

Question 2

What is hypothetical ?

Answer 2

Pure monopoly

Question 3

What is the firm in monoply?

Answer 3

The market

Question 4

What does monopoly do to output while raising price?

Answer 4

Restricted output

Question 5

What 2 competitions have varying degrees of monopoly power?

Answer 5

Oligopoly and monopolistic

Question 6

How is the monopoly market allocatively inefficient ?

Answer 6

Price is above/greater than marginal cost

Question 7

How is the monopoly market productively inefficient ?

Answer 7

Not producing where Ac is lowest

Question 8

Consumer surplus

Answer 8

Difference between maximum price consumers would be willing to pay and price they’d actually pay

(Area between demand curve, price curve and vertical axis)

Question 9

Producer surplus

Answer 9

Difference between minimum price sellers would be willing to accept and price they would actually recieve

(Area between supply curve price and vertical axis)

Question 10

What does monoply cause ?

Answer 10

Deadweight loss of welfare

Question 11

What is the monopolists Objective?

Answer 11

Profit maximisation so they will produce at Qm where MR=MC

Question 12

Arguments against monoply

Answer 12

Productvley inneficient- resources are being wasted

Allocatively inefficient-consumer welfare is not maximised

X-inefficiency - where AC are higher than completion monopolists lack incentive to cut costs to increase profitability

Deadweight loss of economic welfare- as monopolists restrict output and increase prices

Restricts choice for consumers - may lack incentive to innovate for consumers

Monopoly profits

Question 13

Argument in favour of monoply

Answer 13

Monopolies rely on a static model, existence of monoply profits might make it possible for firms to become efficient overtime this is dynamic efficiency

Firms may reinvest monopoly profits to improve their product and increase consumer choice

Can better gain EOS

Natural monopolies

Question 14

Natural monopoly

Answer 14

An industry with high fixed costs which leads itself to being a single firm to average costs can be spread

Question 15

Examples of natural monopolies

Answer 15

BT building and maintaining uk telecommunications

Royal Mail

Camelot operating uk lottery

National grid

London Underground

Manchester metro link

Question 16

3 characteristics monopolistic competition has similar to perfect competition

Answer 16

Large number of firms in the market

No barriers to entry/exit in long run

Only normal profit can be earned in the long run

Question 17

2 characteristics monopolistic competition has similar to monopoly

Answer 17

Goods are somewhat differentiated , thus each firm faces downward sloping demand / AR curve

As a result there is lower and steeper Mr curve

Question 18

Privatisation

Answer 18

A firm or industry is transferred from a state of ownership into private ownership

Question 19

What are the 2 meanings of privatisation?

Answer 19

De nationalisation

Contracting out- state owned firm hires private firm to provide ancillary services

Question 20

Problems with privatisation

Answer 20

If service can be run for profit , price cannot be allocatively efficient

Cutting costs to improve efficiency
May also reduce quality

May not be profitable government may need to step in anyways

Short term gains in cash , loss in tax revenue

Question 21

Advantage of privatisation

Answer 21

Reduce budget deficit and raise revenues allowing govement to reduce taxes