Monopoly

Question 1

Monopoly

Answer 1

Monopoly is a market structure in which there is only ONE dominant firm which sells a unique product, has price-making power and in which there are significant barriers to entry

Question 2

3 Assumptions of Monopoly

Answer 2

1. Single seller / Dominant Firm
2. There are no close substitutes
3. There are significant barriers to entry

Question 3

5 Barriers to Entry

Answer 3

1. Economies of scale => Lower Average Costs
2. Branding => Consumer Loyalty
3. Aggressive Tactics
   
   • Cutting prices
   • Advertisement
   • Takeover
4. Legal Barriers: patents, licenses, copyrights, public
   franchise, trade restrictions
5. Control of essential resources

Question 4

Economies of Scale

Answer 4

Decreases in the average costs of production over the long run as a firm increases all its output

Question 5

Demand & Revenue Curves - 3 Relations

Answer 5

1. Demand Curve = Average Revenue Curve = Price
2. As price falls, total revenue initially increases, and then decreases
3. Marginal revenue curve is steeper than average revenue curve

Question 6

Profit Maximization

Answer 6

1. If P > ATC at MC = MR, firm is making maximum profit
2. If P < ATC at MC = MR, firm is making minimum loss
3. If P = ATC at MC = MR, firm is breaking even

Question 7

Revenue Maximization

Answer 7

MR = 0

Question 8

Shut Down Price

Answer 8

P < AVC