monopoly

Question 1

define a monopoly

Answer 1

a firm that is the sole seller of a product without any close substitutes.

Question 2

3 characteristics of a monopoly

Answer 2

price marker

marker power (alters the relationship between a firm’s costs & the price at which it sells its products.)

charges a price that exceeds marginal costs

Question 3

what is the fundamental cause of a monopoly

Answer 3

barriers to entry

a monopoly remains the only seller because other firms cannot enter the market & compete.

Question 4

barriers to entry has 3 main sources; list them

Answer 4

monopoly resources

government regulation (government-created monopoly)

the production process (natural monopoly)

Question 5

monopoly resources

Answer 5

one company owns an important resources

a firms owns a resources in which everyone relies upon

ex: DeBeers

Question 6

government regulation

Answer 6

a government creates a monopoly by giving a single firm exclusive rights to produce some good or service.

patent & copyright

Question 7

patents

Answer 7

give the company the exclusive right to manufacture & sell a product for a certain number of years.

for anything

Question 8

copyright

Answer 8

is a government guarantee that no one can print & sell the work without the author’s permission.

for art, books, etc.

Question 9

explain why is a monopoly resource rare?

Answer 9

it is rare to find because there are a lot of substitutes in the market.

Question 10

competitive firm vs monopoly (5)

Answer 10

price taker price maker
marker led market power
many seller sole seller
similar substitutes no subs.
enter & exit the market anytime barriers to entry