Theme 3: Monopoly Flashcards
1
Q
What are the two types of monopoly?
A
Pure monopoly- Only one firm in the market
Legal monopoly- Own more than 25% of the market
2
Q
What are the 3 assumptions when looking at monopolies?
A
- Only one firm in the market
- They want to maximise profits
- There are high barriers to entry
3
Q
What are the 5 examples of high barriers to entry?
A
- Legal Barriers
- Sunk costs
- Economies of scale
- Brand loyalty
- Anti competitive prices
4
Q
Draw a monopoly diagram
A
Profit maximing cost revenue diagram
5
Q
What are the two reasons behind a natural monopoly?
A
- High sunk costs
- Huge internal economies of scale
6
Q
Draw a natural monopolies LRAC curve
A
7
Q
Why might the government support certain monopolies?
A
When is it naturally most efficient if there is only one firm in the market eg NHS
8
Q
Draw a constant marginal cost curve
A
9
Q
What is price discrimination?
A
Different groups of consumers are charged different prices for the same good.
10
Q
What are the 3 conditions for price discrimination?
A
- Market power
- Information- who’s elastic who’s inelastic
- Limit reselling
