Economics of Monopoly

These flashcards cover key terminology and concepts related to monopolies and their effects on markets, as discussed in the lecture notes.

Monopoly

A market structure characterized by a single seller, selling a unique product in the market.

Deadweight loss

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

Natural monopoly

A market where a single supplier can produce the entire market output at a lower cost than multiple competing suppliers.

Marginal revenue (MR)

The additional revenue that will be generated by increasing product sales by one unit.

Economies of scale

Cost advantages that a business obtains due to the scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units.

Monopsony

A market situation in which there is only one buyer.

Price discrimination

The strategy of selling the same product at different prices to different consumers, based on their willingness to pay.

Patents

Exclusive rights granted for an invention, allowing the patent holder to exclude others from making, using, or selling the invention for a specified time.

Copyright

Legal protection for creators of original works, allowing them to control the use of their creations such as books, music, and software.

Welfare effects of monopoly

The consequences of monopoly pricing, which typically results in higher prices and lower quantities sold compared to competitive markets, leading to a loss in consumer surplus.

Regulatory capture

A form of government failure which occurs when a regulatory agency, established to act in the public interest, ends up being dominated by the interests of the industry it is supposed to regulate.

The elasticity of demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Average cost (AC)

The total cost divided by the number of goods produced; it represents the cost per unit.

Total revenue (TR)

The total receipts from sales of a given quantity; calculated by multiplying the price per unit by the number of units sold.

Consumer surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay.

Market power

The ability of a firm to influence the price of a good or service in the market.