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Questions and Answers
What is a defining characteristic of pure monopoly?
What is a defining characteristic of pure monopoly?
Which of the following factors may result in the establishment of a monopoly?
Which of the following factors may result in the establishment of a monopoly?
How does a monopolist influence the market price?
How does a monopolist influence the market price?
What does the lack of close substitutes for a monopolist's product imply?
What does the lack of close substitutes for a monopolist's product imply?
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What typically serves as a barrier to entry for new firms in a monopoly?
What typically serves as a barrier to entry for new firms in a monopoly?
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Why is a monopolist referred to as a price maker?
Why is a monopolist referred to as a price maker?
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A monopolist's control over the supply of raw materials can lead to what outcome?
A monopolist's control over the supply of raw materials can lead to what outcome?
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What effect do barriers to entry have on competition in a monopoly?
What effect do barriers to entry have on competition in a monopoly?
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Study Notes
Definition of Pure Monopoly
- Characterized by a single seller for a commodity without close substitutes.
- Positioned opposite perfect competition in market structure.
Causes of Monopoly
- Increasing Returns to Scale: Larger firms can produce at a lower average cost, discouraging new entrants.
- Control Over Raw Materials: A monopolist may dominate critical materials essential for production.
- Patents: Legal protections that grant exclusive rights to manufacture or sell a product.
- Government Franchise: Legal monopolies granted by governments to ensure exclusive service in specific industries.
Features of Pure Monopoly
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Single Seller:
- Presence of only one producer, leading to significant market influence.
- Influences market price through supply changes, but price still determined by demand and supply forces.
- Monopolist referred to as a "Price Maker."
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No Close Substitutes:
- The product offered lacks comparable alternatives.
- Consumer demand is relatively inelastic, as there are no close substitutes to switch to if prices change.
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Barriers to Entry:
- New firms face significant challenges entering the market.
- Barriers can arise from various factors such as high startup costs, regulatory requirements, and established brand loyalty among consumers.
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Description
This quiz explores the concept of pure monopoly in market organization, focusing on its characteristics and causes. Learn about the single seller dynamic and the factors that contribute to the formation of a monopoly in contrast to perfect competition.
