Monopoly

• What is the definition of a monopoly?

  Where there is a single supplier in the market. They have 100% market share.
• What are the characteristics of a monopoly?

  A single seller in the market

  Perfect barriers to entry
• Are monopolists price makers or price takers?

  makers
• What are the barriers to entry in a monopoly?

  Marketing barriers

  Legal barriers

  Location / control of a scarce resource

  Very high start up costs

  Economies of scale

  Asymmetric information

  Limit pricing
• What is limit pricing?

  Setting a price high enough to make a satisfactory profit but low enough to deter market entry.
• Where do monopolists produce

  MR=MC or profit maximisation
• Why are the AC and MC curves U-shaped?

  Law of diminishing returns.
• Why does the short run and long run equilibrium for a monopoly market stay the same?

  Supernormal profits act as a signal for market entry but as there are perfect barriers to entry, no new firms can enter the market so output, price and profit levels stay the same.
• When can the equilibrium price, output and profit levels change?

  External factors such as demand or costs change.