Economics Chapter: Pure Monopoly

Questions and Answers

What is a defining characteristic of pure monopoly?

There is only one seller of a unique product. (correct)

The seller is a price taker.

The product has multiple close substitutes.

There are many sellers of a commodity.

Which of the following factors may result in the establishment of a monopoly?

High competition among firms.

Low barriers to entry.

Excess supply of raw materials.

Increasing returns to scale. (correct)

How does a monopolist influence the market price?

By relying on the prices set by competitors.

By setting a fixed price that cannot be changed.

By adjusting the supply to suit market conditions. (correct)

By having total control over the market demand.

What does the lack of close substitutes for a monopolist's product imply?

Demand for the monopolist's product is relatively inelastic. Signup and view all the answers

What typically serves as a barrier to entry for new firms in a monopoly?

Legal restrictions like patents. Signup and view all the answers

Why is a monopolist referred to as a price maker?

They are able to determine the market price unilaterally. Signup and view all the answers

A monopolist's control over the supply of raw materials can lead to what outcome?

Higher prices for consumers. Signup and view all the answers

What effect do barriers to entry have on competition in a monopoly?

They reduce the number of potential competitors. Signup and view all the answers

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

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."
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.
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.

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.