Monopolies

Question 1

Monopoly

Answer 1

A market structure where one firm operates/dominates

Question 2

Most common forms of market structures

Answer 2

Monopoly
Oligopoly-few firms
Perfect competition
Monopolistic competition-imperfect competition, middle ground between monopoly and perfect competition

Question 3

Characteristics of a monopoly

Answer 3

-One dominant seller, no competition
-Barriers to entry
-Price maker-firms set price according to the demand curve
-Consumers have no choice between price and quality (only one firm)
-Unique product with no close subs
-Can make supernormal profit

Question 4

Types of monopolies

Answer 4

Pure monopoly
Monopoly power
Natural monopoly
Artificial monopoly

Question 5

Pure monopoly

Answer 5

Market with one firm (not many of these in the real world)

Question 6

Monopoly power

Answer 6

1 dominant firm but other smaller firms in the same market
-At least 25% of market sales
-More common than pure

Question 7

Natural monopoly

Answer 7

Arises when a single firm is able to produce at a lower cost than other firms

Question 8

Artificial monopoly

Answer 8

Arises when a single firm is able to to gain market control through government action or other means

Question 9

Monopoly graph

Answer 9

-Downward sloping DC (not price takers like perfect competition)
-AR (average revenue) is revenue generated per unit of output sold
-Any point on the DC indicates how much Q will be demanded at what price, also the AR at that point

Question 10

Monopoly notes

Answer 10

-Consumers are buying from a well established firm but often have to accept lower quality and higher prices as there is no competition for the firm
-Possible exploitation from a pure monopoly
-Most monopolies have inelastic demands
-No incentive to maximise efficiency (no competition)