Theory Of The Monopoly

Question 1

What are the barriers to entry in a monopoly

Answer 1

Patent laws
Nationalisation
Limit pricing
High sunk costs - eg.large amounts of advertising from the incumbent firm
High product differentiation
A firm having control over essential raw materials for example water companies

Question 2

A monopolies profit maximising point is where what equals what

Answer 2

MC=MR

Question 3

What is the revenue maximising point in a monopoly

Answer 3

MR=0

Question 4

What are the characteristics of a natural monopoly

Answer 4

Extremely high capital cost to set up
Duplications is uneasily and wasteful
The MES doesn’t occur until an extremely high level of output

Question 5

What are the conditions required to price discriminate

Answer 5

The vendor can control whatever is offered and there are no other firms present in the market that can sell the product at a lower price
That resale can be prevented
There are different elasticities of demand

Question 6

What are the methods of price discrimination

Answer 6

Geographical- sold at different prices in different regions
Time- eg train companies peek times
Age of customer

Question 7

What is first degree price discrimination

Answer 7

When the firms discriminating can charge a separate price to each individual customer

Question 8

What are the assumptions of a monopoly

Answer 8

The whole output of the industry in the hands of a single firm
There are barriers to entry