Monopoly and Market Power

These flashcards cover key terms and concepts related to monopolies and market power, aiding in the understanding and retention of essential economic principles.

Monopoly

A market with a single seller.

Monopolist

A seller in a monopoly market who has the power to set prices.

Barriers to entry

Costs incurred by new entrants that incumbents do not bear, protecting firms from competitors.

Legal barriers

Exclusive rights over goods such as patents and copyrights that prevent competition.

Natural barriers

Control over essential inputs or advantages such as lower production costs or advanced technology.

Natural monopoly

A situation where a single firm can supply an entire market at a lower cost than multiple firms.

Declining average total cost

Indicates a natural monopoly due to substantial economies of scale.

Market power

The ability of a monopolist to affect price because there are no close substitutes.

Price maker

A firm that can set its own prices, as opposed to a price taker in perfect competition.

Perfectly elastic demand curve

The demand curve faced by a perfectly competitive firm where price must be accepted as given.

Monopoly pricing strategies

The techniques a monopolist employs to set prices higher than in competitive markets.

Single price monopolist

A monopolist that sells each unit of a good at the same price.

Price discrimination

Selling different units of a good for different prices.

Marginal revenue (MR)

Additional revenue gained by selling one more unit of a good.

Output effect

The increase in revenue from selling more units.

Price effect

The decrease in revenue when the price falls as more units are sold.

Marginal Cost (MC)

The cost of producing one more unit of a good.

Profit maximization for monopolists

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

Total revenue (TR)

Revenue a firm earns from the sale of its goods.

Total cost (TC)

The total cost incurred by a firm in producing its goods.

Welfare efficiency

Achieved when marginal benefits to consumers equals marginal cost of production (MB = MC).

Deadweight Loss (DWL)

Loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Surplus

The difference between what consumers are willing to pay and what they actually pay.

Public policies towards monopolies

Regulations aimed at reducing market power and promoting competition.

Marginal cost price regulation

When the government sets price at the level of marginal cost (P = MC).

Average cost price regulation

When the government sets the price at average total cost (P = ATC).

Consumer’s willingness to pay (WTP)

The maximum price consumers are willing to pay for a good or service.

Producer's costs

The expenses incurred by a producer in making a good or service.

Socially efficient level of output

The output level where MB equals MC.

ACCC

Australian Competition and Consumer Commission, which oversees market competition.

Cartels

A group of firms that coordinate to control prices and production.

Subsidies for monopolists

Financial support from the government to keep monopolists in the market.

Market exit

When a firm leaves the market due to unsustainable conditions or losses.