| What is a Monopoly? | -In Economies, a Monopoly is a Market with just a Single Firm. The Firm has 100% Market Share (Pure Monopoly)
-In law, a Monopoly is when a Firm has a Market Share of 25%. (Real Life Monopoly) |
| What is Monopoly Power? | -This is, even with Multiple Firms in the Industry, Firms can Influence the Price of Goods by themselves. They are Price Makers
-Thus, the Price is not fully decided on by the Market |
| How can Monopoly Power come about? | -Barriers to Entry discourages Competition to Firms with Supernormal Profits
-Advertising and Product Differentiation: Firms can be a Price Makrer if Consumers Strongly Prefer their Products over other Firms (Brand, Quality..)
-Few Competition in Market - If a Few Firms dominate then there will be Monopoly Power between them.
NOTE: Consumers can still not buy the Product at all. Demand Curve Logic still stays the Same |
| How can Monopolist Firms make Supernormal profits in the Long Run? | -Since the Firm is aiming to Max Profits, MC=MR will be the level of Output
-The Demand Curve will produce a Price relating to the Output from MC=MR.
-The AC Curve will produce a AC cost, which is below that of the Price the Firm is Charging. So there is large Profits being made
-Since it’s a Monopoly, Barriers to Entry are Impossible so new Firm can enter the Market. That means the Firm will always Retain that Profit (Unless Trade Unions intervene..) |
| Why are Monopolies not Productive or Allocative Efficient? | -Monopolies do not have to produce at the Lowest Point on the AC Curve to get the Profit it wants. This makes Monopolies Productive Inefficient.
-The Price also is charged much more than the MC - the Cost to the Firm. This means that Monopolies are Allocative Inefficient
-Furthermore, the Product the Monopoly is producing will be Under-consumed - Consumers will not be getting as much as they’d like (Consumer Surplus) |
| How can you Identify Deadweight Welfare Loss in a Monopolistic Firm? | -Deadweight Welfare Loss refers to the revenue that the Producer has lost because it has not be Produced, because Consumers would have been prepared to pay for it (Above the Price Equilibrium)
-You find this from the Equilibrium Point, where the Equilibrium Price meets MR(A) , and then when the Output that makes A reached AR Curve (B) |
| What further Disadvantages, apart from not wing Productive or Allocative Efficient, do Monopolies posses? | -No Need for Monopolies to Innovate or Change to Consumers Preferences, so chance of Ignorace May Build up
-No Need to Increase Efficiency - X-Inefficiency is High
-Consumer Choice becomes restricted as no other Firms in the Industry
-Monopsonist Power used to Exploit Suppliers |
| What are Natural Monopolies and why do they occur? | -Industries when the Fixed Costs are High and Huge Economies of Scale can develop tend to lead to Monopolies developing.
-If more than 1 Firm existed, then they’d all have the High Fixed Costs which would affect the Consumer
-Monopolies may be more Efficient than Competition. (Take Water. What’s the point of several Firms laying Separate Pipes?) |
| What will Natural Monopolies possess in relation to Economies of Scale? | -Natural Monopolies will possess Continuous Economies of Scale. LRAS keeps Falling as Output Increases (MC is below AC) |
| How could Governments try to stop Natural Monopolies from achieving High Supernormal Profits? | -Profit Maxing will restrict Output to MC =MR creating a Supernormal Profit for themselves
-Government may intervene ie give out Subsidies so Output is Increased to where AD = MC and thus Prices drop dramatically. |
| What are the Advantages of Monopolies? | -Monopoly’s huge size can leads to Huge Economies of Scale. AC can be kept low and Production will be higher than any Single Firm in PC Markets
-Supernormal Profits being generated can encourage security and dynamic efficiency - Development and Improving
-Financial Security allows to Provide Stable Jobs
-Intellectual Property Rights (IPR) allow Limited Monopolies that can benefit Consumers because good Quality, New and Essential Products (Drugs) can be made |
| What are the Different Types of IPR, and how can they benefit? | -Copyright and Patents are 2 main ways. Only the Firm that owns the IPR can use the Product/Service
-Supernormal Profits is achieved, rewarded for the Creativity and Innovation
-Without IPR, Firs may have little incentive to Invest because its Rivals can copy for less Resources. |
| What is a Monopsony?!) | -This is when a Single Buyer dominates the Market.
-They can act as a Price Maker and drive down the Prices charged by Suppliers. Supermarkets is an Example where they Force Suppliers to sell at a Loss
-This also works with Labour - Being the Only Employer means it can Lower Wages (TRADE UNION) |
