monopolies Flashcards
what is a monopoly
when there is only one firm in the market
characterstics of monopolies
one firm
not identical products because only firm in the market
imperfect knowledge
high barriers to entry and exit
are price makers
supernormal profits in the short & long run
what barriers to entry are there for monopolies
brand loyalty
sunk costs
economies of scale
legal barriers (trademarks, copyrights)
new technology
ownership of raw materials
being the first mover
what section of the monopoly diagram would the firm produce on
left side
they are productive and allocatively inefficient
can the monopolist earn supernormal profits in the long run and why?
they can because there high barriers to entry
what is price discrimination
charging a different price to different ppl like age, gender, location for the same good
conditions for P.D
Firm is a price maker with downwardly sloping demand curve
Separate markets e.g. students and adults
Stop resale
different elasticities of demand
low admin costs
what is a pure monopoly
has 100% of the market share unlikely to exist unless of brand new product
disadvantages of monopolies
higher prices for customers
less choice for customers
less incentive to cut costs
less incentive to innovate
potential diseconomies of scale
allocative and productive inefficiency
decline in consumer surplus
pros of Price discrimination
it makes fuller use of space capacity = less space =>environmental benefits
helps generate extra cash flow
high profits = finance for research and development which leads to dynamic efficiency
cons of price discrimination
can increase regional inequality cos accessing goods at higher prices
high prices = loss of consumer surplus
increase in administration costs for firms to ensure consumer are in separate markets
what is a national monopoly
only one firm in the industry
what is first degree price discrimination
charging different prices for each individual unit purchased
what is second degree price discrimination
price varying by quantity sold
