10 Questions
Why might a monopoly firm choose to sustain losses for a long period of time through price wars or massive advertisement campaigns?
To deter competition
In what situation would long-run average costs (LRAC) be lower under a monopoly than if an industry was shared between competitors?
Natural monopoly
What term is used to describe the situation where a monopoly produces at a lower quantity and higher price than a competitive market, resulting in societal welfare losses?
Deadweight loss
Why do governments often intervene with legislation to limit the ability of firms to form monopolies?
To promote competition and protect consumer interests
What is the term that describes the situation where a monopoly could produce at a lower price but does not do so, leading to inefficiency?
X-inefficiency
What is a key characteristic of a monopoly market?
There is a barrier to entry
What type of barrier to entry is described as resulting from the industry being more efficient?
Natural barrier
Which deliberate action is taken by a monopolist to deter new entrants?
Limit pricing
What do switching costs refer to in terms of barriers to entry?
Costs of searching for new suppliers
What advantage could a monopolist have due to control of key inputs or economies of scope?
Absolute cost advantages
Test your knowledge on the characteristics of a monopoly market where one firm dominates and acts as a price maker. Learn about barriers to entry and the implications of a monopolistic market structure.
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