4.2 Monopoly

A monopoly is where:

There's only one firm in the market

Pure monopoly

Firm has 100% market share

Legal Monopoly

When firm controls over 25% of market share e.g Tesco

Monopoly assumptions

1. Assume there is only 1 firm with 100% control
2.assume firm is profit maximiser so will produce at MC=MR
3.High barriers to entry e.g patents

What are the 4 barriers of entry

1. Legal barriers
2. Sunk costs
3. Economies of scale
4. Brand loyalty

What are legal barriers

Patents, copyrights and trademark that stop new firms using ideas of firms already in the market

Sunk costs are

Money invested that can't get back e.g advertising or specialist machinery
(high cost of failure)

Internal economies of scale

Reduces LRAC
6 Types of internal economies of scale
RMFPTM
(Richards mum flies past the moon)
1.Risk bearing
2.Managerial
3.Financial
4.Purchasing
5.Technical
6.Marketing

Brand Loyalty

Strong branding from original firms makes impossible for new firms to make sales

Monopoly Diagram