3.5.6 Monopoly and monopoly power

• Monopolists offer unique products without close substitutes.


  True
• How does monopoly power influence price and output?

  Maximizes profits
• Significant obstacles like legal restrictions can create barriers to entry in a monopoly.


  True
• What is a monopoly in terms of market structure?

  A single seller
• Monopolists benefit from significant barriers to entry.
• Match the monopoly characteristic with its description:

  Unique Product ↔️ No close substitutes

  Barriers to Entry ↔️ Prevents competition

  High Market Power ↔️ Influences price and output
• The monopolist's dominance allows it to exert high market power.
• Exclusive control over essential resources can lead to monopoly power.

  True
• Strong customer preference for an established brand is an example of brand loyalty.
• What is the impact of legal restrictions on competition in a market?

  Restricts new entry
• Economies of scale lower average costs, making competition difficult.
• Match the source of monopoly power with its example:

  Legal Restrictions ↔️ Patent for a drug

  Control over Essential Resources ↔️ De Beers and diamonds

  Economies of Scale ↔️ Airplane manufacturing

  Brand Loyalty ↔️ Coca-Cola's recognition
• Strong customer preference for an established brand is known as brand loyalty.
• Government-granted patents are an example of legal restrictions that create monopoly power.


  True
• Why do high start-up costs create a barrier to entry for smaller firms?

  Significant capital required
• Match the key aspect with the correct market structure:

  Monopoly ↔️ Unique product

  Perfect competition ↔️ Homogenous product
• Which market structure has no market power for individual firms?

  Perfect competition
• A monopoly offers a product with no close substitutes.
• Order the characteristics of a perfectly competitive market:

  1️⃣ Many sellers

  2️⃣ Homogenous product

  3️⃣ Low barriers to entry

  4️⃣ No market power
• Strong brand loyalty can create a barrier to entry for new firms.


  True
• What happens to consumer surplus under a monopoly compared to perfect competition?

  Lower
• What is allocative efficiency achieved in a competitive market?

  Price equals marginal cost
• What is one example of a legal restriction that can establish monopoly power?

  Government-granted patent
• Why do high start-up costs create a barrier to entry in a market?

  Requires significant investment
• Order the factors that can establish monopoly power based on their frequency:

  1️⃣ Legal Restrictions

  2️⃣ Control over Essential Resources

  3️⃣ High Start-up Costs

  4️⃣ Economies of Scale

  5️⃣ Brand Loyalty
• Control over essential resources is a source of monopoly power.


  True
• Why does strong brand loyalty make it hard for new firms to compete?

  Established preference for brand
• What is the effect of economies of scale on smaller firms in a market?

  Lower average costs
• Which market structure allows a single firm to exert considerable control over prices and output?

  Monopoly
• Exclusive control over raw materials is a source of monopoly power.
• A monopoly is characterized by a single seller controlling the entire supply of a unique product.


  True
• In a monopoly, barriers to entry are high.
• A pharmaceutical company with a patent on a life-saving drug exerts significant market power.


  True
• What prevents other firms from entering a monopoly market?

  Barriers to entry
• What is one example of a legal restriction that creates monopoly power?

  Government-granted patents
• Exclusive control over essential resources is a source of monopoly power.
• Monopolies charge prices higher than marginal cost, leading to allocative inefficiency.


  True
• Monopoly power reduces overall economic welfare by misallocating resources.


  True
• Why do monopolies fail to achieve allocative efficiency?

  Charge prices above marginal cost
• Competitive markets achieve allocative efficiency because price equals marginal cost