T5 - Monopoly

Question 1

Barriers to entry in a monopoly

Answer 1

Patents and copyrights
Nationalsied firms
Eco of scale casuing low prices
High FC
Brand image
Marketing
Product Differentiaion
R&D expenditure
Vertical intergration
Sunk costs

Question 2

Natural barriers to entry in a monoploy

Answer 2

Economies of scale
Incumbent firms have low LRAC
Sunk costs

Question 3

Artifical barriers to entry

Answer 3

Patents
Product differentiation
High amrketing costs
First mover advantage
Predatory pricing

Question 4

What type of profits do monopolies make in the long and short run

Answer 4

Supernormal

Question 5

Do monopolies operate at MC = ATC

Answer 5

No as they dont need to lower costs due to no other firms entering the market

Question 6

What is X Ineffeciency

Answer 6

Lack of real effective comp, causing no need to lower cost curves

Question 7

Where is marginal cost pricing

Answer 7

MC = AR

Question 8

What is allocatiev efficency

Answer 8

Where the selling price is reflectie of the cost of making

Question 9

What is the poitn fo ATC = AR

Answer 9

Average Cost Pricing

Question 10

Key characteristics of a natural monopoly

Answer 10

Extremely high captial costs to set up
Copy is unneccesary
The MES occurs in long run (high FC, low MC)
Will experience RTS at all levels of output

Question 11

Where do the government want natrual monopolies to operate at

Answer 11

MC = AR

Question 12

What are firms reactions to being made to operate at MC = AR

Answer 12

Argue they are makign a loss, and need subsidising

Question 13

Positive of monopoly

Answer 13

Benefit from eco of scale
Doesnt waste infrastructure
Can generate export revevnue
Can generate dynamic efficiency
Avoids free rider problem

Question 14

Negatives of a monopoly

Answer 14

Restrict market output
Charging high prices
Reducign consumer surplus and eco welfare
Restrict chocie for consumers
Reduces consumer soverignty

Question 15

External costs of a monopoly

Answer 15

Less competitive economy in global market
A less efficent economy
Less productive efficient
Less P = MC
Eco is likely suffer from X inefficiency
Less emplyment, due to lower output, less demand for labour

Question 16

Why are there only oen firm in a natural monopoly

Answer 16

As if there were multiple, it would be hard to achieve the MES and eco of scales

Question 17

Examples of a natural monopoly

Answer 17

BT
Royal Mail
National grid
London underground

Question 18

Issues with natural monoploy

Answer 18

High investment spending
High barriers to entry, explout power and make supernormal profits

Question 19

Competition policies for NM

Answer 19

NAtionalisation
Price control
Fines for ant comp behvaiour
Introducing comp, selling infrastructure

Question 20

Giev an evalutaion of - that in a M , there are gains of PE, thereofre products can be suppied on a large scale

Answer 20

Signle supplier could changre the price damarging consumer welfare

Question 21

Giev evalaution of - indusry regulators may decide to cap prices to achieve P = MC

Answer 21

If MC> LRAC, capping prices will cause losses in indusstry damagign ability to do dynamic efficiency

Question 22

Giev evaluation of - when there are high BTE, X inefficiency can occur, causign high bills for consumers

Answer 22

SOme of the supply chain to the final consumer may be deregalated to stim comp hence lower prices

Question 23

why is a imp comp ar and mr curve downward sloping

Answer 23

because the market isnt perfect

a firm in an imp comp market cant have the same price to sell all there shit, they must dec it as the basic law of demand says

monopoly can restirct output by higher prices

Question 24

why is pc curve hrpiztonal

Answer 24

as they have to accept market price, emanign all qty fo sale is doen at that prcie

it can clear production and output if it sells at that price, therefore it makes no sense not to seel at thta pricce

Question 25

main reason why a pc curve is hroizotnal adn monopoly is downward slopign

Answer 25

as in pc, firms can seell all qty at taht given price, due to perfectly elastic demand

it woudltn maek snese for them to change that price

where as monoply faces has some control over price, and has to lower price to inc q dmadned