monopolies Flashcards

1
Q

what is a pure monopoly

A

when there is only one seller in a market – 100% market share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what is a legal monopoly

A

one dominant firm has at least 25% market share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is a dominant monopoly

A

one firm has at least 40% market share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what type of comp is monopolies

A

imperfect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what are 4 characteristics of imperfect firms (think opposite of perfect comp)/ monopolies- they they same dawg x

A

High barriers to entry and exit

No homogenous products- lack of substitutes

Limited or no choice for consumers

Price-makers – monopolists have the power to set prices in their markets. downwards sloping demand curve. To sell more, firms must lower prices which changes MR (not equal to demand)

Ab or supernormal profit in SR and LR

Economies of scale may be significant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

are they productively efficient

A

no

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

why

A

because they dont produce at the lowest possible cost (p=mc) as price is above marginal cost to maximize profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

are they allocatively efficient

A

no

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

why

A

they do not produce the quantity of goods that maximizes total societal welfare as they underproduce at a price that is not possible to pay for all potential consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

are they x efficient

A

no

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

why

A

less incentive to reduce their costs or improve productivity due to the lack of comp pressure and the power over setting prices as they’re price makers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

are they dynamically efficient

A

yuh

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

why

A

they’re making super normal profit which can be put into r and d creating barriers to market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what are natural monopolies

A

One firm can produce the socially optimal quantity at the lowest cost due to economies of scale.
single firm can supply the entire market demand at a lower cost than any combination of multiple firms due to economies of scale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

characteristics of a natural monopoly (8)
dont be too hard on yourself for not getting these dawg but also never undermine your academic power cus your clever and you can do it! love you and me and you who is also me #slay #purr

A

Extremely high set up costs (capital equipment needed)

Results in huge fixed costs

High capital costs are a significant barrier to entry to competition

Only room for one firm to be efficient as the MES is so large

Economies of scale are so great that the most efficient outcome can only be achieved by one firm in the industry

Low marginal cost to supply extra customers

No Competition

Monopoly power not due to unfair practice by firms or an attempt to stifle competition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is the minimum efficiency scale (MES)

A

smallest level of LR output a firm can produce whilst taking advantage of internal economies of scale resulting in the lowest possible LRAC

operating efficiently at or near the MES helps increase the firm’s overall profitability by reducing costs.

17
Q

why is there only firm

A

very high fixed costs

duplication of scarce resources- wasting resources so not always good as if there’s more than 1 then they wont achieve MES

18
Q

are they productively efficient

19
Q

allocative efficient?

20
Q

dynamically efficient

21
Q

how may a natural monopoly become allocatively efficient

A

through gov intervention- subsidies!

22
Q

whats a real life example

A

severn trent

23
Q

advantages of monopolies

A

can earn supernormal profits- can invest in research and development yielding positive externalities which can make them more dynamically efficient in the LR which can help create new products and enhance technology. an example would be pharmaceutical companies use high profits to fund drug research

24
Q

disadvantages of monopolies- why are they not allocatively efficient

A

not allocatively efficient (p does not = mc and this is where society is ensured an optimal output but instead P is set above MC so produce less than society wants and make it inaccessible creating a deadweight loss due to underconsumption e.g a life-saving drug priced too high by a monopoly means some people who need it cannot afford it, reducing overall welfare leading to market failure as resources are not allocated where they are most needed, but rather where they maximize profits.