Podcast
Questions and Answers
What characterizes a monopolist's ability to set prices in the market?
What characterizes a monopolist's ability to set prices in the market?
- They are price-setters with no competition. (correct)
- They have full control over all market resources.
- They operate in a perfectly competitive market.
- They have a market share of less than 50%.
Which of the following is NOT considered a barrier to entry for monopolistic markets?
Which of the following is NOT considered a barrier to entry for monopolistic markets?
- Legal Barriers (Patents/Copyrights/Licences)
- Network Externality
- Market Saturation (correct)
- Technological Superiority
In terms of demand, how does the marginal revenue (MR) of a monopolist behave?
In terms of demand, how does the marginal revenue (MR) of a monopolist behave?
- MR is below the demand curve for all output levels. (correct)
- MR is above the demand curve for inelastic demand.
- MR equals the average revenue at all sales quantities.
- MR is identical to the price on the demand curve.
What results when a monopolist operates above the profit maximization point?
What results when a monopolist operates above the profit maximization point?
Which statement about a dominant firm in a market is true?
Which statement about a dominant firm in a market is true?
Flashcards
Dominant Firm
Dominant Firm
A firm controlling over 50% of a market's share.
Monopolist
Monopolist
Sole seller with no close substitutes in an industry, holding a 100% market share; possesses market power.
Barriers to entry
Barriers to entry
Obstacles preventing new firms entering a market, leading to market concentration.
Natural Monopoly
Natural Monopoly
A monopoly arising from high fixed costs, leading to economies of scale (e.g., utilities).
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Profit Maximization
Profit Maximization
Occurs where Marginal Revenue (MR) equals Marginal Cost (MC), a general principle applicable to all market structures.
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Dominant Firms and Monopolies
- Dominant firm: Holds over 50% of market share
- Monopolist: Sole seller with no close substitutes; 100% market share; market power (ability to set prices)
Barriers to Entry (Monopolies)
- Control of natural resources/inputs
- Increasing returns to scale (high fixed costs lead to natural monopolies)
- Technological superiority
- Network externalities (value of good/service increases as more use it)
- Legal barriers (patents, copyrights, licenses)
- Acquisitions, mergers, takeovers
Monopoly Demand Curve
- Downward sloping
- Profit maximization: MR = MC
- In monopolies, marginal revenue (MR) is always below demand (D)
- Profit maximization occurs where MR = MC, but the monopolist chooses a price above this intersection point, on the demand curve
Monopoly Profits
- Supernormal profits; no fear of market entry
- Price-setters
- Never produce on inelastic portion of demand curve
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