1.2.20 Monopolies

Cards (23)

  • define monopoly
    when there is a dominant seller in a market
  • What are the Features of a Monopoly (4)
    It is a firm that dominates the market
    Unique product
    Price Maker
    Barriers to Entry
  • unique product
    Products that are highly differentiated and have no substitutes in a pure monopoly
  • How can a monopoly change the prices they charge
    They can increase the prices they charge by restricting the quantity supplied of their goods in the market
  • How do other firms monopolies happen?
    Monopolies happen when competition is discouraged
  • Monopolistic markets markets have a high/low barriers to entry. Why?
    High, because there's obstacles preventing from a new entrant from trying to compete
  • What are legal barriers in a monopoly? What does it mean?
    when the government can award a contract to a firm to provide a service with forbidden competition, BtE
  • what is a patent?
    licence that grants permission to operate as a sole producer of a newly designed product, BtE
  • How are patents significant to a firm being a monopoly?
    they can make a firm the sole supplier of a product for up to 20 years, BtE
  • how can a firm use the money gained from patents?
    they can charge higher prices and use the money for R&D costs
  • What are marketing budgets in an monopoly?

    Normally monopolists have a strong name, spending a lot on advertising, which new firms wouldn't be trusted with ads, BtE
  • what is technology in an monopoly
    When a firm has up-to-date technology, it could be high BtE
  • In relation with monopolies, what are high start-up costs?
    the cost of setting up a firm is sometimes too high for other firms
  • How can high start up costs prevent competition?
    because some firms might find it difficult to match such financial commitment
  • What are the advantages of an Monopoly?(3)
    Innovation
    Efficiency
    EoS
  • How could efficiency be an advantage of a Monopoly? (2)
    In natural monopolies, it is more efficient for one firm to supply all customers
    Firms exploit EoS because of this
  • How could innovation be an advantage of a monopoly for booth a firm and a consumer? (2)
    Monopolies make high profits, and with that money they can invest in R&D
    Consumers benefit from new products and new tech
  • How could EoS be an advantage of a monopoly for a firm and a customer?
    low avg costs, low price
  • What are the disadvantages of a monopoly? (4)

    High prices
    Restricted choice
    Lack of Innovation
    Inefficiency
  • How can high prices be a disadvantage for Monopolies?
    Monopolies can restrict output to force up the price
  • How could restricted choice be a disadvantage for monopolies?
    SInce the customers wouldn't be able to switch suppliers if dissatisfied
  • How could lack of innovation be a disadvantage of monopolies in a market?
    Because firms don't have the incentive to spend money on innovation, since its the only choice in the market
  • How is Inefficiency a disadvantage of monopolies in a market? (3)
    No competition -> No incentive to keep cost down
    DoS -> higher avg costs -> High prices
    poor customer service