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Economics > Monopoly > Flashcards

Monopoly Flashcards

1
Q

what is imperfect competition

A

where firms are able to differentiate their products in some way and so have influence over their prices

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2
Q

types of imperfect competition

A

monopoly
duopoly
oligopoly
monopolistic competition

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3
Q

define monopoly

A

a firm that is the sole seller of a product without close substitutes

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4
Q

in reality how can firms exercise monopoly

A

by being the dominant firm in the market

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5
Q

how can you asses if a firm is dominant or not

A

if it owns over 25% of the market share

eg microsoft in operating systems market

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6
Q

what is market share

A

proportion of total sales in a market accounted for by a particular firm

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7
Q

what is market power

A

a firm exercises market power when it is in the position to change the price of its products and retain sales

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8
Q

is a monopolistic firm a price maker or price taker

A

price maker

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9
Q

is a firm in perfect competition a price maker or a price taker

A

price taker

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10
Q

what is a barrier

A

something that prevents a firm from entering the industry

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11
Q

barriers to entry to the monopoly market

A
  1. ownership of a key resource
  2. government giving a single firm the right to production
  3. natural monopoly
  4. external growth
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12
Q

example of an industry that owns a key resource resulting in monopoly

A

MARKET for diamonds in 1980s De Beers had market share of 35%

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13
Q

what is a patent

A

the right conferred on the owner to prevent anyone else making or using an invention or manufacturing without permission

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14
Q

examples of companies that would get a patent

A

pharmaceutical industry

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15
Q

why are patents give out

A

incentives for research and innovation, desirable behavior

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16
Q

what is copyright

A

the right of an individual or organisation to own things they create to prevent them from being copied. the creator is a monopolist

17
Q

when does natural monopoly happen

A

when the cost of production makes a single producer more efficient than multiple

18
Q

why is it unattractive to enter a market in which their is natural monopoly

A

the firm entering wont experience the same low costs that the monopolist experiences

Start up costs are too expensive so they dont enter

19
Q

example of natural monopolies

A

ESB, Bord Gáis

20
Q

what is a vertically integrated monopoly

A

owns all production
owns all distribution
owns all the demand

21
Q

how can monopolies grow

A

acquisition, merging, taking over other firms

22
Q

why do governments carefully monitor acquisitions

A

as to make sure monopolies dont happen

23
Q

examples of companies that have merged, deciding to build a monopoly positiom

A

eg facebook buying instagram, whatsapp

24
Q

do monopolies charge prices above or below marginal costs

A

above

25
Q

how is total surplus measured

A

consumer surplus + producer surplus

26
Q

why is it that monopolies are socially efficient

A

some consumers are turned off by high price and producer surplus increases by exactly the amount of consumers that didnt buy, total surplus is never actually changed, as consumer surplus would be increased at same rate as producer surplus

27
Q

does a monopoly earn a greater or smaller profit than a firm in perfect competition

A

more profit as a result of its market power

28
Q

what is price discrimination

A

selling the same product at different prices to different customers despite the production costs being consistent

The monopolist knows the willingness to pay of eacg customer so can change prices based on this

29
Q

why is price discrimination impossible in perfect competition

A

all goods are sold at the market price

30
Q

examples of price discrimination

A

weekend vs weekday airline tickets

discount coupons will only be used by people who cut them out and remember to use them

cinema tickets are cheaper for kids and OAPs as they have less interest in going to the cinema

31
Q

how can government promote competition between firms

A

prevent merges
break up companies
make competition laws

32
Q

what is the government agency that controls competition in ireland

A

competition and consumer protection commission

33
Q

what are the disadvantages of monopoly

A

higher prices than competitive markets
lower output usually
no choice for consumers

34
Q

what can governments do to control monopolies

A

regulate prices
make more competitive
turn private monopolies into public enterprises

35
Q

why are monopolies rare

A

very few products are truly unique

Economics (25 decks)

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