3.4.5 monopoly

Question 1

define monopoly?

Answer 1

this exists where one firm is the sole seller of a product in a market
e.g google has 88% of the market

Question 2

in real word it is stated that if the market has 25% of the market share then they can be considered as a monopolistic firm

Answer 2

yes

Question 3

are monopoly firms considered short-run profit maximisers?-char

Answer 3

yes

Question 4

are monopoly firms considered to have high barriers to entry and exit-char

Answer 4

yes

Question 5

is monopoly allocatively efficient?-cons

Answer 5

no because they charge a price higher than MC-exploiting consumers because higher prices so low consumer surplus and restricts quantity.
resources not following consumer demand which means low quality as there low competition.

Question 6

does imperfect information exist in a monopoly firm?

Answer 6

yes

Question 7

where will profit maximisation take place?

Answer 7

when MC=MR to make supernormal profit

Question 8

At the same time could the firm make a loss in the short run?

Answer 8

yes because there is high barriers to entry and exit

Question 9

what is third degree price discrimination?

Answer 9

this is when monopolists charge different prices to different people for the same good or service.

Question 10

give some examples of this?

Answer 10

peak and off-peak train times

-diff prices in diff locations or elderly people get discounts

Question 11

for third degree price discrimination to happen, what needs to happen?

Answer 11

• firm should be able to separate the market into group of buyers
• customers will have different elasticities of demand
• control supply

Question 12

in a monopoly firm do firms sell differentiated products?-cha

Answer 12

yes

Question 13

how would the diagram look for supernormal profit

Answer 13

-label x-axis as quanitity
-label y-axis as price
-draw a AR=D curve pointing downwards
draw a MR twice as steep
-draw a AC curve in the middle c shape upwards
-draw a MC curve from the lowest point nike shape
where MR=MC DRAW q star
-draw a dotted line up where it touches p1
then below draw a dotted line where it touches c1
that box represents sr profits

Question 14

is monopoly productively efficient?-cons

Answer 14

no they are foregoing EOS which means they are not producing at the minimum point on AC, which is why prices are high so inefficiency.

Question 15

is the firm x-efficient?-cons

Answer 15

occurs when monopolists produce beyond AC which means excess costs because they have a lack of competitive drive or difficulty reducing cost-if the firms don’t need to do it they won’t. so no

Question 16

does dynamic efficiency happen?-pros

Answer 16

yes-lr sr profits to persist which means they can invest into the company through tech, upgraded capital investment, innovative products, etc

Question 17

how can you speak about the rise of inequality in monopoly?-cons

Answer 17

there’s going to be rise in inequality if monopoly happens in necessity markets which means that the poor may not be able to afford such high priced goods therefore leading to a deadweight loss in consumer surplus.

Question 18

why does price discrimination happen?

Answer 18

if they charge different groups of consumers different prices they can earn more profit than one firm charging the same price for every consumer