Monopoly Flashcards
Monopoly graph, short run or long run??
Trick question, it’s both as it does not change as firms can’t enter
Where do they product on the graph?
MR= MC
They want to profit maximise, to sell more they need to drop the price in order to sell a larger quantity.
How can they develop?
Horizontal Vertical Internal growth Legal monopoly Being the first firm Natural monopoly
Barriers to entry:
Low price Technology High set-up costs Patents Lack of knowledge Natural monopoly Trusted firm
Advantages
Regular supply of product
Improved quality and efficiency and abnormal profits reinvested into the business
Large economies of scale
Disadvantages
Higher price Poor quality Lack of option Productive inefficiency Allocative inefficiency X inefficiency Diseconomies of scale
Price discrimination:
When a certain market charges a higher prices than another
E.g times, dates, age
Advantages of price discrimination
Firms increase revenue
Some customers get a good price
Disadvantages of price discrimination
Higher cost for most
Lower consumer surpluses
Profits used for predatory pricing
Administrative close for separate market
Characteristics:
Only one supplier in the industry
Barriers to entry and exit are very high
Perfect knowledge
Price setters
