Monopoly Flashcards
What is a monopoly?
When there is only one market in the economy
What is a legal monopoly
They have over 25% market share
What are the modelling assumptions for a monopoly ?
1) only one firm in the market
2) profit maximisers (MC =MR)
3) High barriers to entry
Name the 5 High Barriers to entry that prevent other firms from entering?
1 . Legal barriers
2. Sunk costs
3. Economies of scale
4. Brand loyalty
5. Anti competitive
What is an example of legal barriers and sunk costs?
- Patent : legal letters that stop a company from copying their work.
- Money that can’t be recovered , ie: advertising, research and development
High sunk costs , increase the cost of failure and therefore deter others from joining.
How do firms use Internal economies of scale to form high barriers of entry?
1) By having greater market share firms have more money , this means they have better machinery to produce better goods which in turn means they sell their goods for a cheaper price , making it hard for smaller companies to compete.
2) loyalty
Name the six types of internal economies of scale:
Richard’s mum flies past the moon
1)Risk bearing
2)managerial
3)financial
4)purchasing
5)technical and marketing.
Anti competitive practises?
Vertical integration , barrier to entry , control scarce resources , refuse to let firms use the resources , stop them from entering.
When is productive efficiency shown using a diagram?
When MC = AC, where AC is at its lowest
On a diagram when is a firm allocatively effiecient
MC= AR
When is X efficiency ?
When AC is above given output.
WHAT IS DYNAMIC Efficiency
Changing technology improves output potential over time, you need supernormal profit .(MC=MR)
