Monopolistic & Oligopolistic markets

Question 1

What are the characteristics of a monopolistic market?

Answer 1

• One firm controls the majority of the market
• High barriers to enter and exit
• Firm is a price setter (AR/Demand curve is downwards sloping)
• Undersupplies so not allocatively efficient (welfare loss)
• Supernormal profits
• Takes advantage of economies of scale but not productively efficient
• Examples: Apple, Thames water(natural monopoly), Pharma patents

Question 2

Draw an example of a diagram that shows why monopolistic markets may sell at a lower price than competitive markets due to economies of scale.

Answer 2

Question 3

What is the difference between a non-price discriminating monopoly and a price discriminating monopoly?

Question 4

What are the key characteristics of an oligopoly?

Answer 4

• A few firms dominate the market
• Products are slightly different and have market power
• Firms are interdependant
• High barriers to enter and exit

Question 5

What are some types of economies of scale