Monopolies

Question 1

What’s a ‘monopoly’?

Answer 1

A situation where there is one dominant seller in a market

Question 2

What’s a ‘New entrant’?

Answer 2

A company that starts to sell goods or services in a market where they have not sold them before, or one of these goods or services

Question 3

What’s a ‘Price maker’?

Answer 3

It’s where a dominant business is able to set the price charged in the whole market

Question 4

What’s a ‘patent’?

Answer 4

license that grants permission to operate as a sole producer of a newly designed product

Question 5

What are ‘natural monopolies’?

Answer 5

A situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many smaller firms

Question 6

What are ‘Market segments’?

Answer 6

groups of customers that share similar characteristics, such as age, income, interests, and social class.

Question 7

What are the features of a monopoly?

Answer 7

• One business dominates the market.
• The product is unique and highly differentiated.
• The monopolist is a price-maker.
• There are barriers to entry that prevent or discourage competition.

Question 8

What are the main barriers to entry for monopolies?

Answer 8

• Legal barriers, such as exclusive government contracts.
• Patents that prevent others from copying products or technology.
• High marketing budgets and strong brand names.
• Superior technology that is difficult for competitors to replicate.
• High start-up costs that deter new entrants.

Question 9

What are the advantages of a monopoly?

Answer 9

• Efficiency in markets where a single supplier is more efficient, such as natural monopolies.
• Innovation due to high profits and resources for research and development (R&D).
• Economies of scale leading to lower average costs and potentially lower prices for consumers.

Question 10

What are the disadvantages of a monopoly?

Answer 10

• Higher prices due to market dominance.
• Restricted choice for consumers.
• Lack of innovation if monopolists do not face competition.
• Inefficiency and poor customer service

Question 11

how do the main barriers to entry impact competition?

Answer 11

These barriers can prevent or discourage competition, leading to market dominance by a single firm and potentially higher prices for consumers.

Question 12

Discuss the role of innovation in monopolistic markets.

Answer 12

• In monopolistic markets, firms have the resources and incentive to invest in innovation due to their market power and high profits.
• This can lead to the development of new products and technologies that benefit consumers.
• However, if monopolies are too dominant, they may lack the incentive to innovate, leading to stagnation.