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Monopoly flashcards
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- 1Definitiona market where there is one producer with 100% market share
- 2characteristicsInsurmountable barriers to entry
no close substitutes
firms are price makers (can influence by limiting output)
Monopolies can be: local, national, international - 3types of barriers to entryanti-competitive practises - entry limit pricing, keeps out competitors
High EOS. Natural monopolies occur if an industry is more efficient with just one firm with high EoS.
Technological advantage - protected by patents/intellectual property law.
high set up costs eg oil
marketing barriers (branding, control over supplies, control over sales)
Legal barriers to entry - 43 assumptions about monopoliesno distinction between short run and long run
profit maximisation is long run equals short run
monopolists produce in elastic part of demand curve - 5Demand curve in monopolyThe firms demand curve is also the industry/market demand curve.
The average revenue curve is always above the marginal revenue curve, and the distance between them increases as quantity does. Occurs in order to sell more units, the monopolist has to reduce its price. We assume that all units are sold at a single price.
Monopolists always produce in the part of the demand curve which is elastic. ie has PED>1. - 6profit maximising output in a monopolyno distinctions between SR and LR
monopolists will make abnormal profits when MC=MR, because average revenue curve will always be above the MR at all levels of output. - 7disadvantages to monopoliesmonopolists are shielded from competition and therefore many charge higher prices for lower output than firms in PC.
monopolists may not be driven by market forces to be efficient or to provide a quality product
monopolists exploit consumers.
do not produce efficiently - shown on diagram - produce at profit maximising output instead.
monopoly does not produce allocatively efficiently
monopoly is an example of market failure - 8advantages of monopoliesmay experience higher/large economies of scale
monopolies have lower ATC and MC than firms in perfect competition. Monopolies have lower ATC and profit maximising output, and can charge cheaper prices than in PC which has higher MC
Creative destructionism - economist believe that new products, new technologies, new processes could have overcome monopolies and destroy them. Thus they have to stay ahead of potential competitor to survive. Disruptive technologies can lead to businesses failing, eg online shopping.
monopolies can use profit to invest
can price discriminate which benefits some customers. - 9Why is a monopoly market failure.leads to loss of consumer/producer surplus (social welfare), because the monopolist restricts output and charges higher prices. The loss of social welfare is called the 'dead weight' of monopoly.
some of the CS has been taken by the monopolists in the form of abnormal profit, but lower output produced by monopolies leads to permanent loss of CS and PS. - 10What is price discriminationCharging different groups of consumers, a different price for the same product.
"3rd degree price discrimination" - 11methods of price discriminationage
day of the week
hour of the day
advance bookings/late bookings
different locations - 12conditions of price discriminationyou have to be able to keep the groups separate, in order to prevent low price groups re-selling to high price groups.
groups have to have different PED - higher price groups more elastic.
The firm has to be a price maker to influence the price - 13advantages of price dicriminatiomhigher revenue, higher profit
can attract more consumer who could previously not afford
higher output leads to more EoS
can cross subsidise- use profit from higher price group to provide product to lower group.
can use it as part of predatory pricing policy. Drive comp out of market. - 14natural monopoliesthe long run average cost curve and demand curve show monopolies are much better than duopolies and naturally occur in some markets
- 15costs in monopoly vs PCmonopolists have lower marginal costs at profit maximisation point. Can charge the monopoly price which is lower than PC price because they have economies of scale and lower costs.
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- Highers Economics (MicroEconomics) Karteikarten am Monopoly flashcards, erstellt von anna boyd am 16/01/2019.
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