Monopoly

Question 1

Describe features of a monopoly

Answer 1

1 firm
High barriers to entry and exit
Many buyers 1 seller
Price maker
Imperfect information

Question 2

Barriers to entry

Answer 2

• Low prices
• Expensive machinery
• (Can’t keep up with R&D)
• Imperfect information
• Can’t match worker wages

Question 3

Disadvantages of a monopoly

Answer 3

-Higher prices -than in a competitive market
-diseconomies of scale
-no alternatives few sellers
-Inefficient nothing to force them to maximise resources
-High market power intimidation/bullying due to size
-Little innovation
-Worse quality
The fact they are inefficient leads to a welfare loss to society

Question 4

Advantages of monopoly

Answer 4

• larger growth so more employment
• Better service
• possibly more innovation more money to spend
• economies of scale