monoply

• define a monopoly?

  where one firm dominates the market and has a market share of 25% or more
• characteristics of monopoly ?

  • high barriers to entry and exit
  • no substitute or competition
  • profit maximisers at MC=MR
• what is price discrimination ?

  charging different prices for the same good/service to different people
• what conditions must be met in order for price discrimination to take place?

  • market power
  • difference in ped
  • market segmentation e.g age/gender/race
• how is economies of scale useful to monopolists?

  they can produce at lower average costs and set high prices which allows them to maintain supernormal profits
• implications of profit maximising objective ?

  most likely to exploit consumers by charging higher prices as they have no substitutes and therefore are forced to pay higher prices for their goods and services
• how are monopolists not allocatively efficient ?

  allocative efficiency = price = MC

  so monopolists are not AE because they are charging higher than MC which means they are exploiting consumers
• how are they not productively efficient ?

  this is due to them not producing at the lowest point of the AC curve therefore not reducing costs which makes them not productively efficient
• are monopolists dynamically efficient ?

  Yes, this is because they produce supernormal pofits which are then reinvested into the firm for R+D costs and innovations
• are monopolists innovative ?

  yes because they generate SNP however, due to them having no competition they are less incentivised to innovate and therefore produce higher quality to their consumers