Monopoly: Key Concepts and Principles

These flashcards cover the essential vocabulary and concepts related to monopolies, including definitions of key terms and related economic principles.

Monopoly

A market structure in which a single firm makes up the entire supply side of the market.

Barriers to Entry

Constraints that protect a firm from potential competitors.

Economies of Scale

A situation where the larger a firm becomes, the lower its per unit costs become.

Natural Monopoly

Occurs when increasing returns to scale provide a large cost advantage to a single firm.

Patents

Legal protections for technical innovations that grant exclusive rights to the inventor.

Network Externality

The value of a good or service increases as more individuals use it.

Price Discrimination

The ability of a monopolist to charge different prices to different customers.

Marginal Revenue (MR)

The change in total revenue that results from a one-unit increase in quantity sold.

Profit Maximization in Monopoly

Occurs when marginal cost equals marginal revenue (MC = MR).

Welfare Loss

Loss of economic efficiency when the equilibrium outcome is not Pareto optimal, common in monopolistic markets.

Single-Price Monopoly

A firm that sells each unit of its output for the same price to all consumers.

Unit Elastic Demand

A condition in which a change in price does not affect total revenue.

Perfect Competition

A market structure where many firms sell identical products and no single firm can influence the market price.

Consumer and Producer Surplus

The benefits gained by consumers and producers in a market, which can decrease in monopoly situations.

Profit (Loss) Calculation

Determined by subtracting average total cost from average revenue (P) at the profit-maximizing output.

Inelastic Demand

A situation where a change in price leads to a decrease in total revenue.