Monopoly

Question 1

Types of market

Answer 1

Perfect comp

Monop comp

Oligopoly

Monopoly

Question 2

Perfect comp

Answer 2

Very many firms
Unrestricted entry
Homogenous product
Price taker (horizontal curve )

At equilibrium 
Short run supernormal profits possible not long run 
P=mc
S=mc 
All supernormal profits competed away

Production at minimum AC
No point advertising

Question 3

Monopolistic competition

Answer 3

Many firms
Unrestricted entry
Differentiated product

Downward sloping but relatively elastic D curve

You

Question 4

Oligopoly

Answer 4

Few firms
Restricted or completely blocked entry
Undifferentiated or differentiated product

Downward sloping Relatively inelastic (shape depends on reactions of rivals)

Question 5

Monopoly

Answer 5

One firm
Restricted or completely blocked entry

Unique product

Downward sloping D curve more inelastic than oligopoly

Firm has considerable control over price

Profit up through MR=MC then the bit between AC and AR

Question 6

Disadvantages of perfect comp

Answer 6

Insufficient profits for investment

Lack or product variety

Lack of competition over product design and speculation

Question 7

Barriers to entry

Answer 7

Economies of scale 
Product differentiation and brand loyalty 
Lower costs for an established firm 
Ownership or control over outlets 
Legal restrictions
Mergers and takeovers 
Aggressive tactics 
Intimidation

Question 8

Ads and disads of monopoly

Answer 8

Dis
High prices / low output - short run and long run

Lack of incentive to innovate

X inefficiency

Advantages economies of scale
Profits can be used for investment
Promise of high profit encourage risk taking

Question 9

Contestable markets

Answer 9

Low entry costs low exit costs

Hit and run comp

Question 10

Collusion

Answer 10

Collective exercise of market power

Occurs when competition among firms is suppressed

Why collude
Effective collusion may increase seller profits and decrease buyer profits

Tacit and explicit

Question 11

What is a cartel

Answer 11

Group of firms that suppress rivalry among themselves, coordinating prices and output levels to increase their joint profits

We call this Explicit collusion

Question 12

Sanctions

Answer 12

Law is enforced by CMA (completion and markets authority )

Which can impose a fine of up to 10% of your turnover

On an individual level max penalty is 5 years imprisonment
Can also call for company directors to be disqualified