Monopolies pt2

Question 1

Why are there high barriers to enter a market with a monopoly

Answer 1

In a natural monopoly, there are high barriers to entry because of high initial cost. Would be very difficult for an entrant to capture a large enough part of the market to achieve the same low costs as a monopolist.

Question 2

Profits for monopolies

Answer 2

-Tend to be high as firm doesn’t have much competition
-They control price (price makers) and quality of products too
-Consumers are often forced to buy them as they don’t have other options

Question 3

Natural monopoly : EoS

Answer 3

-Natural monopoly has continuous EoS (LRAS falls as output increases for firm)
-Where AR>AC, monopoly would make supernormal profit

Question 4

Benefits of a monopoly

Answer 4

-Economies of scale
-Security in the market (high barriers to entry)
-Price makers (high profits)
-Stable employment for workers in a monopoly

Question 5

Perfect competition vs Monopoly

Answer 5

-PC market is very competitive and so are less concentrated with no barriers.
-Monopoly very concentrated as 1 or a few firms have big market share

Question 6

Concentration ratios

Answer 6

The collective market share of the biggest firms in the industry. N:Total market share, where N is the number of big firms and total market share is the sum of % given