- Economics 23

3/2/26 Monopolies - 9/2/26 Evaluation of Monopolies

Draw a diagram showing when it is efficient to be small

Draw a diagram showing when it is efficient to be large

Define concentration ratio

The proportion (%) of the market share held by the dominant firms.

Give an example of concentration ratio

5 : 60 (no. of dominant firms : market share percentage)

What can you say about demand when there’s only one firm in the market (provide a diagram)

All demand goes to that firm, inelastic PED.

What can you say about monopoly demand and market demand, when there’s only one firm in the market

Monopoly demand = Market demand

If firms (monopolies) want to sell one more unit, they must…

DECREASE the price

Draw a diagram showing how monopolies sell one more unit, and comment on effect on customers

• If firms (monopolies) want to sell one more unit, they must DECREASE the price.

• Different customers have different willingness to pay.

For the example of a pure monopoly, how is demand, average revenue, and price linked

Demand = Average Revenue = Price (D = AR = P)

Monopolies can decrease the price of goods, to sell one more unit (since supply shifts left). Why can they do this

Monopolies are price makers.

Define consumer surplus

The difference between the total amount that consumers are willing and able to pay for a good / service, and the total amount that they actually do pay.

Define producer surplus

A measure of producer welfare. It’s measured as the difference between the total amount that producers are willing and able to pay to supply a good / service for, and the price they actually receive.

Draw a consumer surplus diagram, and explain the effect of a monopoly’s decisions

Define allocative inefficiency

(In a monopoly) Occurs when resources are not allocated to best accord to consumer preferences, so supply does not equal demand.

Define collusion (and give an example)

Cooperation between firms (e.g. price fixing).

Define a cartel (and state what they are an example of)

When firms collude formally. They’re an example of anti-competitive conduct.

List the 3 benefits of Monopoly Power

• Research and Development

• Exploitation of Economies of Scale

• International Competitiveness

In terms of monopoly power, explain research and development, and state a benefit of it

• High monopoly profits enable investment spending and development projects.

• This benefits consumer welfare.

In terms of monopoly power, explain the exploitation of economies of scale, and state a benefit of it, and a potential drawback (3 points)

• Falling costs may be passed on to the consumers in the form of lower prices.

• Justification for monopolies to exist, as they benefit consumers.

• Monopolies can choose to keep prices the same, despite lower costs.

In terms of monopoly power, explain international competitiveness

Large scale (UK) monopolies are needed to compete in global markets.

List the 3 factors for why firms may LOSE their monopoly power

• Technological change

• Globalisation

• Deliberate government policies