monopoly and monopoly power

Question 1

monopoly

Answer 1

a single producer who produces 100% of the output of a good in a market

Question 2

characteristics of monopoly

Answer 2

• profit maximisation
• price discrimination
  -high barriers to entry
• price maker

Question 3

factors that influence monopoly power

Answer 3

• high barriers to entry
  -actions of competitors
• advertising
  -product differentiation

Question 4

Advantages

Answer 4

• significant supernormal profit can be invested into research and development can generate positive externalities
  -generate export revenue
• exploit economies of scale and reduce average cost of production
• high profits gov revnue

Question 5

disadvantages

Answer 5

• result in misallocation of resources
  -consumers can be exploited by high prices
  -monopolies have no incentive to be more efficient
• consumers do not get choice
  -loss of consumer surplus