4.1 Monopoly

• What is a monopoly in terms of market structure?

  Single seller, high barriers
• Compared to perfect competition, a monopoly lacks multiple sellers and free entry
• A monopolist has price control, whereas firms in perfect competition do not.
• Match the characteristic of a monopoly with its example:

  Single Seller ↔️ Google's dominance in search engines

  High Barriers to Entry ↔️ Exclusive patent rights held by pharmaceutical companies
• Order the following characteristics of a monopoly from general to specific:

  1️⃣ Single Seller

  2️⃣ High Barriers to Entry

  3️⃣ Price Setting Power

  4️⃣ No Close Substitutes
• What are barriers to entry in a monopoly?

  Obstacles to new firms
• Legal barriers to entry include patents, copyrights, and licenses
• A monopolist maximizes profit by producing where marginal revenue equals marginal cost.
• What does the marginal revenue (MR) curve in a monopoly represent?

  Revenue from one more unit
• The characteristics of a monopoly include a single seller, high barriers to entry, and price setting power
• Match the monopoly characteristic with its description:

  Single Seller ↔️ Only one firm provides the product or service in the market.

  High Barriers to Entry ↔️ Significant obstacles prevent new competitors from entering the market.

  Price Setting Power ↔️ The monopolist has substantial control over prices.

  No Close Substitutes ↔️ The monopolist's product or service has no readily available alternatives.
• Monopolies lack multiple sellers and free entry compared to perfect competition.
• Barriers to entry in a monopoly are obstacles that prevent new firms from entering the market
• Match the type of barrier to entry with its example:

  Legal Barriers ↔️ Pharmaceutical companies holding patents on drugs.

  Economic Barriers ↔️ Utility companies with large infrastructures.

  Strategic Barriers ↔️ Brand loyalty to major consumer goods companies.
• Competitive markets have low barriers to entry, whereas monopolistic markets have significant barriers.
• A monopolist maximizes profit where marginal revenue equals marginal cost
• Steps a monopolist takes to determine prices and output:

  1️⃣ Analyze Demand Curve

  2️⃣ Analyze Marginal Revenue

  3️⃣ Analyze Marginal Cost

  4️⃣ Determine output where $MR =$$MC$

  5️⃣ Set price based on the demand curve
• Monopolies create deadweight loss by producing less output and charging higher prices compared to perfect competition.
• The formula to calculate deadweight loss is $\text{Deadweight Loss} =$$\frac{1}{2} (P_{m} - P_{c}) (Q_{c} - Q_{m})$, where $P_{m}$ and $Q_{m}$ are monopoly price and output
• Why do monopolies create deadweight loss?

  Less output, higher prices
• The formula for calculating deadweight loss in a monopoly is \frac{1}{2}(P_{m} - P_{c}) (Q_{c} - Q_{m}).
• A deadweight loss of $250,000 indicates inefficiency caused by the monopoly.
• What is the primary goal of government regulation of monopolies?

  Promote fair competition
• Antitrust laws prevent mergers and anticompetitive practices to reduce competition.
• Match the regulatory tool with its description:

  Antitrust Laws ↔️ Prevent anticompetitive practices

  Price Controls ↔️ Set price ceilings

  Industry Deregulation ↔️ Reduces government involvement
• Regulation can increase efficiency by reducing deadweight loss.
• What are the key characteristics of a monopoly?

  Single seller, high barriers
• High barriers to entry prevent new firms from entering the market.
• Compared to perfect competition, a monopoly has one seller with control over price.
• Match the monopoly characteristic with its description:

  Single Seller ↔️ Only one firm supplies the product

  High Barriers to Entry ↔️ Obstacles prevent new competitors

  Price Setting Power ↔️ Monopolist controls prices

  No Close Substitutes ↔️ No readily available alternatives
• What is an example of a monopoly with a single seller?

  Google's dominance in search engines
• In contrast to perfect competition, a monopoly has a single seller with significant control over prices.
• What is a classic example of a monopoly with exclusive government rights?

  Local utility company
• Why are barriers to entry significant in a monopoly?

  Maintain dominance
• Significant obstacles prevent new competitors, creating high barriers
• In contrast to perfect competition, a monopoly has multiple sellers and free entry.

  False
• Match the type of barrier to entry with its description:

  Legal Barriers ↔️ Exclusive rights granted by governments

  Economic Barriers ↔️ High capital requirements or economies of scale

  Strategic Barriers ↔️ Pricing strategies or advertising to deter entrants
• Why is it difficult for new competitors to emerge in a monopoly like a local electricity company?

  Economies of scale and government licenses
• A monopolist aims to maximize profit by producing where marginal revenue equals marginal cost.
• What does the marginal revenue curve represent in monopoly pricing decisions?

  Additional revenue from one more unit