Schedule H Monopoly Flashcards
What is a pure monopolist?
A single supplier of a good or service, which therefore has 100% market share
What authority in the UK is in charge of ensuring good competition?
UK Competition and Markets Authority (CMA)
What is a working/legal monopoly?
CMA defines it as any firm that has greater than 25% market share
What is the difference between being a monopoly and having monopoly power?
A monopolist dominates the entire market but monopoly power is the ability of a firm to act as a price maker
Why can monopolists maintain supernormal profits in the long term?
No firms can come in because of high barriers to entry and there is also imperfect information. This allows supernormal profits to persist in the long run
What is the profit maximising rule?
MR = MC
Why is MR less than AR (thinking of the monopolistic revenue diagram)?
It is because in order to sell an additional unit, a firm is assumed to lower the price of all units sold and not just the marginal unit sold - this is the case unless the firm can do perfect price discrimination
What does being a pure monopolist mean for the demand curve of the market structure?
A pure monopolist is a single seller in an industry so the firm is the industry - it can take market demand as its own demand curve
True or false? Justify your answer.
A monopolist is a price maker and hence has unbridled pricing power.
False. The firm is a price maker but a monopoly cannot charge a price that consumers in the market will not bear. In this sense, the price elasticity of the demand curve acts as a constraint on the pricing-power of the monopolist
At the profit maximising output for a monopolist, what is the relationship between AR and AC and what does this imply for profits?
At the profit max output, AR>AC so the firm is making supernormal profit
