monopolies Flashcards
what are causes of monopolies
cost based monopoly - one firm has lower costs
cost advantages - better tech and access to resources
what is a natural monopoly
a single firm can produce the market required quantity at a lower cost than if the market was competitive
what is the main feature of a natural monopolies cost curve
has constant economies of scale
how can a government create a monopoly
BoE - rights to produce
patents - exclusive selling rights
how can a government reduce market power
price controls
increase competition
what are problems with price regulating
limited info about cost curves, set bar to high/low
regulators may be influenced by companies
what can happen if the price is set to high or low
DWL
what portion does the monopoly always operate on
elastic portion
define MR
extra revenue gained from the production on an additional good
what is the MR equations
MR = DTR/DQ
MR = change in R/ change in quantity
how does the MR curve relate to demand curves for all linear demand curves
D = 2MR
what equates MR to P
MR = P(1+1/E)
what can monopoly change
price or quantity (not both simultaneously
what is the shutdown point for a monopoly in the SR
P<AVC at the profit maximising point (MR=MC)
shutdown point in the LR for monopoly
P>AC at PM point
