Monopoly Market Structure

• What is a natural monopoly?

  An industry where one firm dominates
• Why does a natural monopoly require a large market share?

  To reach the minimum efficient scale
• How does a natural monopoly affect market prices?

  It can lower prices compared to competition
• What is the shape of the long-run average cost (LRAC) curve in a natural monopoly?

  Constantly falling, not shaped like a 'U'
• What does reaching minimum efficient scale involve?

  A large amount of output
• Can a natural monopoly have multiple businesses operating in the market?

  Yes, in smaller niche segments
• What is a potential conflict in natural monopolies regarding efficiency and economic welfare?

  Monopoly power may raise prices and harm consumers
• Why is it more efficient to have one dominant provider in a natural monopoly?

  It ensures productive efficiency for infrastructure
• What type of investment is required for natural monopolies?

  Enormous investment spending
• What might a business with monopoly power do to maximize profits?

  Raise prices and exploit consumers
• What are the implications of huge barriers to entry in a natural monopoly?

  They can lead to supernormal profits
• What are the key characteristics of natural monopolies?

  • One firm dominates the market
  • Economies of scale favor large firms
  • LRAC curve is constantly falling
  • Can have smaller firms in niche markets
  • Potential for high barriers to entry
• What are the conflicts between efficiency and economic welfare in natural monopolies?

  • Efficiency from one provider vs. consumer welfare
  • High investment needs vs. potential price exploitation
  • Monopoly power can lead to supernormal profits
• What is a pure monopoly?

  A firm with 100% market share
• What is monopoly power?

  One firm has 25% or more market share
• Can a market with 100 firms still be a monopoly?

  Yes, if one firm has >25% share
• What is the role of the Competition Markets Authority in the UK?

  To monitor monopoly markets
• What is one assumption of a monopoly?

  There is a single seller of a good
• Why are there no substitutes in a monopoly?

  There are no actual or potential substitutes
• What does it mean for a firm to be a price maker?

  The firm can influence the price of its product
• How does the demand curve for a monopoly differ from perfect competition?

  The demand curve slopes downwards
• What determines the price a monopolist charges?

  The price is determined by the AR curve

  
• What is the relationship between the MR and AR curves in a monopoly?

  The slope of MR is twice that of AR

  
• How does a monopoly determine its output level?

  Where the MC curve intersects the MR curve
• What does it mean for a monopoly to make supernormal profits?

  AR is above AC, leading to excess profits

  
• Why are barriers to entry important for monopolies?

  They prevent competition from entering the market

  
• What is the difference between allocative efficiency and productive efficiency?

  Allocative efficiency occurs at MC=AR
• What is x-inefficiency in a monopoly?

  Complacency due to lack of competition
• How can monopolies benefit from economies of scale?

  They can reduce costs by operating at higher output
• What is a natural monopoly?

  A market where one firm can supply the entire market
• How can monopolies impact innovation?

  They may invest in R&D due to supernormal profits

  
• What is the role of patents in a monopoly?

  They provide legal protection for innovations
• How does a monopoly affect suppliers?

  It can exert significant negotiation power over them
• What is a monopsony?

  A market with a single buyer of labor
• How can monopolies affect employee job security?

  They may provide stable employment due to financial security
• What are macroeconomic implications of monopolies?

  They can increase productive capacity and employment
• What is the impact of monopoly on consumer welfare?

  It can lead to higher prices and lower quantity
• What are the benefits and drawbacks of monopolies?

  Benefits:

  • Innovation and R&D investment
  • Potential for lower prices due to economies of scale
  • Increased market certainty for firms

  
  

  Drawbacks:

  • Higher prices and lower quantity for consumers
  • Inefficiency and lack of choice
  • Potential for x-inefficiency
• Compare monopolies and perfect competition in terms of efficiency.

  Monopoly:

  • Not allocatively efficient (MC≠AR)
  • Not productively efficient (MC≠AC)

  
  

  Perfect Competition:

  • Allocatively efficient (MC=AR)
  • Productively efficient (MC=AC)
• What are the key sub-topics associated with monopolies?

  • Natural Monopoly
  • Price Discrimination
  • Barriers to Entry