Monopoly

Question 1

what is imperfect competition

Answer 1

where firms are able to differentiate their products in some way and so have influence over their prices

Question 2

types of imperfect competition

Answer 2

monopoly
duopoly
oligopoly
monopolistic competition

Question 3

define monopoly

Answer 3

a firm that is the sole seller of a product without close substitutes

Question 4

in reality how can firms exercise monopoly

Answer 4

by being the dominant firm in the market

Question 5

how can you asses if a firm is dominant or not

Answer 5

if it owns over 25% of the market share

eg microsoft in operating systems market

Question 6

what is market share

Answer 6

proportion of total sales in a market accounted for by a particular firm

Question 7

what is market power

Answer 7

a firm exercises market power when it is in the position to change the price of its products and retain sales

Question 8

is a monopolistic firm a price maker or price taker

Answer 8

price maker

Question 9

is a firm in perfect competition a price maker or a price taker

Answer 9

price taker

Question 10

what is a barrier

Answer 10

something that prevents a firm from entering the industry

Question 11

barriers to entry to the monopoly market

Answer 11

1. ownership of a key resource
2. government giving a single firm the right to production
3. natural monopoly
4. external growth

Question 12

example of an industry that owns a key resource resulting in monopoly

Answer 12

MARKET for diamonds in 1980s De Beers had market share of 35%

Question 13

what is a patent

Answer 13

the right conferred on the owner to prevent anyone else making or using an invention or manufacturing without permission

Question 14

examples of companies that would get a patent

Answer 14

pharmaceutical industry

Question 15

why are patents give out

Answer 15

incentives for research and innovation, desirable behavior

Question 16

what is copyright

Answer 16

the right of an individual or organisation to own things they create to prevent them from being copied. the creator is a monopolist

Question 17

when does natural monopoly happen

Answer 17

when the cost of production makes a single producer more efficient than multiple

Question 18

why is it unattractive to enter a market in which their is natural monopoly

Answer 18

the firm entering wont experience the same low costs that the monopolist experiences

Start up costs are too expensive so they dont enter

Question 19

example of natural monopolies

Answer 19

ESB, Bord Gáis

Question 20

what is a vertically integrated monopoly

Answer 20

owns all production
owns all distribution
owns all the demand

Question 21

how can monopolies grow

Answer 21

acquisition, merging, taking over other firms

Question 22

why do governments carefully monitor acquisitions

Answer 22

as to make sure monopolies dont happen

Question 23

examples of companies that have merged, deciding to build a monopoly positiom

Answer 23

eg facebook buying instagram, whatsapp

Question 24

do monopolies charge prices above or below marginal costs

Answer 24

above

Question 25

how is total surplus measured

Answer 25

consumer surplus + producer surplus

Question 26

why is it that monopolies are socially efficient

Answer 26

some consumers are turned off by high price and producer surplus increases by exactly the amount of consumers that didnt buy, total surplus is never actually changed, as consumer surplus would be increased at same rate as producer surplus

Question 27

does a monopoly earn a greater or smaller profit than a firm in perfect competition

Answer 27

more profit as a result of its market power

Question 28

what is price discrimination

Answer 28

selling the same product at different prices to different customers despite the production costs being consistent The monopolist knows the willingness to pay of eacg customer so can change prices based on this

Question 29

why is price discrimination impossible in perfect competition

Answer 29

all goods are sold at the market price

Question 30

examples of price discrimination

Answer 30

weekend vs weekday airline tickets discount coupons will only be used by people who cut them out and remember to use them cinema tickets are cheaper for kids and OAPs as they have less interest in going to the cinema

Question 31

how can government promote competition between firms

Answer 31

prevent merges break up companies make competition laws

Question 32

what is the government agency that controls competition in ireland

Answer 32

competition and consumer protection commission

Question 33

what are the disadvantages of monopoly

Answer 33

higher prices than competitive markets lower output usually no choice for consumers

Question 34

what can governments do to control monopolies

Answer 34

regulate prices make more competitive turn private monopolies into public enterprises

Question 35

why are monopolies rare

Answer 35

very few products are truly unique