Monopoly

Question 1

What is a pure monopoly?

Answer 1

A market in which a single firm is the lone seller of a good or service

Question 2

3 main characteristics of monopoly?

Answer 2

One seller and many buyers
Unique product
Barriers to entry

Question 3

3 types of barriers to entry and examples?

Answer 3

Legal - copyrights, patents, licensing, tariffs

Exclusive control over inputs - eg. Severn Trent having 46000km of water pipes

Economies of scale - natural monopoly can arise due to industry only being able to sustain one firm (eg. Severn Trent)

Question 4

Prove that MR is twice as steep as AR?

Answer 4

1) P = AR = a-bq
2) Δp/Δq = -b
3) MR = a-bq+(-b)q
Therefore MR = a-2bq

Question 5

What is market power?

Answer 5

The ability of a seller to raise price without losing all demand for the product being sold

Question 6

Short and long run shut down points for a monopolist?

Answer 6

SR: if p

Question 7

Price and costs monopoly vs. PC?

Answer 7

Costs lower and price higher with a monopoly

Question 8

Why is there no supply curve for a monopoly market?

Answer 8

There’s no one-to-one relationship between supply and quantity

Question 9

When doing marginal cost for a box, put it in box before or after?

Answer 9

Before

Question 10

Define a natural monopoly?

Answer 10

When a single firm can supply a good or service at a lower cost than 2 or more