Monopoly

Question 1

What is a monopoly?

Answer 1

A firm that has 25% or more market share.

Question 2

What is a pure monopoly?

Answer 2

A firm who has 100% of market share.

Question 3

Characteristics of a monopoly

Answer 3

-Significant barriers to entry
-Price givers
-Imperfect information
-High product differentiation
-Abnormal profit

Question 4

What are the barriers that allow them to make supernormal profits?

Answer 4

-Economies of scale
-Technology
-Brand loyalty
-Bureaucracy
-Patences
-Specialist knowledge
-Geographical barriers
-Sunk cost

Question 5

Advantages of Monopolies

Answer 5

-Economies of scale
-Innovation due to abnormal profit
-High profitability leading to new technology being introduced lowering ATC
-Possibly increased consumer choice from wider range of products covering different market segments

Question 6

Disadvantages of Monopolies

Answer 6

-Inefficient
-Higher prices/ lower output
-Barriers to entry can lead to restricted choice
-Complacency
-Monopolists providing essential services have inelastic demand curves wo low income groups get badly affected

Question 7

What is sunk cost?

Answer 7

These are cost that cannot be avoided, or once made, cannot be recovered