Monopoly Flashcards
What is a monopoly ?
When there is one seller dominating the market
There are differentiated products - firms are price makers
High barriers to entry and exit
Imperfect information
Firm is profit maximisers (MR=MC)
What is a pure monopoly ?
One firm with 100 percent of market share
What is monopoly power ?
One firm has 25 percent of market share ( legal monopoly )
Draw the monopoly diagram ?
Explain the monopoly diagram
There is no allocative efficiency a they are charging a price greater than marginal cost , exploiting consumers
No productive efficiency , intentionally foregoing EoS by not producing at a min point of AC curve which is the reason why prices are so high
X inefficiency as they produce above AC curve + complacency increases costs
Dynamically efficiency as there is long run supernormal profits being made for reinvestment
Why is there a deadweight welfare loss ?
As monopolies are reducing the level of society surplus
Where is consumer surplus on the diagram ?
Pc , Qc = ABC
Pm + Qm = A
Where is producer surplus on the diagram ?
Pc , Qc = D+E
Pm , Qm = B+D
Where is society surplus
