Monopoly

Question 1

monopoly

Answer 1

one supplier of a good that has no close substitutes

Question 2

monopsony

Answer 2

one buyer

Question 3

how?

Answer 3

• exclusive control over inputs
• economies of scale
• patents
• network economies
• government licensing

Question 4

what is a patent?

Answer 4

government granted to protect the intelligence of a firm/product. e.g pharmaceutical companies protecting drugs

Question 5

economies of scale?

Answer 5

division of labour, technical, bulk buying, marketing, financial, external

Question 6

bulk buying

Answer 6

whereby big companies can buy at large quantities lowering average costs, lower transport costs, less packaging

Question 7

financial

Answer 7

better rate of interest than smaller firms. (better for borrowing money)

Question 8

marginal revenue and price

Answer 8

the change in its revenue from selling one unit

Question 9

perfect competition (MR)

Answer 9

the marginal revenue is lined horizontal as price is predetermined by the markets and firms are the only price takers.

Question 10

profit maximisation

Answer 10

MR=MC

Question 11

revenue maximisation

Answer 11

AR=0 (P=AR)

Question 12

Elasticity

Answer 12

PED, PES, XED, YED

Question 13

Inelastic

Answer 13

less than one

Question 14

elastic

Answer 14

greater than one

Question 15

unitary elastic

Answer 15

1

Question 16

trade off

Answer 16

monopoly faces a trade off between charging higher prices, or lower quantity / lower prices and higher quantity.

Question 17

MR equation

Answer 17

MR= p(1+ 1/e)

Question 18

Price descrimination

Answer 18

practice where the monopolist charges different prices to different buyers, different preferences and levels of purchasing power

Question 19

1st degree price descrimination

Answer 19

prices varies according to customers willingness and ability to pay - for example an auction. Creates a consumer surplus; the difference between what consumers are willing to pay and what they actually pay

Question 20

2nd degree

Answer 20

charging different prices for quantities; quantity discounts for bulk buying - available at a lower unit price. they will charge a price that COVERS the MARGINAL cost of production - to extract some of the consumer surplus

Question 21

3rd degree

Answer 21

charging different prices to buyers in completely separate markets - some will be less price sensitive RELATIVE to other markets.
must prevents ARBITRAGE (buying in the second market and then selling for higher price in the first market) for example tickets, airfares etc

Question 22

monopolistic competition

Answer 22

many buyers and sellers, low barriers to entry, slightly differentiated products, firms enter the markets until no firm can enter profitability, downward sloping demand curve, increasing returns to scale

Question 23

equilibrium (monopolistic)

Answer 23

long run - price is equal to the marginal cost, price equals average cost - as no firm can enter profitability

Question 24

perfect competition

Answer 24

many buyers and sellers, low barriers to entry, differentiated products, profit maximising,

Question 25

MC vs PC

Answer 25

monopolies are less efficient as they do not produce on their minimum points on LRAC, profit maximisation exhibits increasing returns to scale, profitability is the same in the long run for both

Question 26

monopoly

Answer 26

one producer, many consumers, high barriers to entry (legal barriers), lack of economic competition, lack of substitutes,

Question 27

spatial interpretation

Answer 27

evenly spread restaurants, consumers are evenly spread

Question 28

optimum number of locations?

Answer 28

the firm incurs fixed cost for establishment of new outlets if transportation costs =0 optimum to have one outlet, if the number of outlets increase then the transportation costs decrease, causing a trade of between fixed costs and the transportation cost and cost of the meal

Question 29

optimum number

Answer 29

is on the minimises the sum of transportation and meal costs.