Monopoly Characteristics and Economics

A comprehensive set of vocabulary flashcards focusing on key concepts related to monopolies, their characteristics, economic definitions, and comparisons with perfect competition.

Monopoly

A market structure characterized by a single seller of a good or service with no close substitutes.

Price Maker

A monopolist is a price maker, meaning they can set the price of their product based on market demand.

Market Power

The ability of a monopoly to influence the price and supply of a product.

Barriers to Entry

Factors that prevent new firms from entering a market, leading to the existence of monopolies.

Control of Key Resources

When a firm has exclusive ownership of a crucial resource necessary for production.

Legal Barriers

Government-created restrictions that grant monopolies exclusive rights, such as patents and copyrights.

Natural Monopoly

A market structure where a single firm can supply the entire market at a lower average total cost than multiple firms.

Total Revenue (TR)

The total income of a firm from selling its goods, calculated as TR = Price x Quantity.

Marginal Revenue (MR)

The additional revenue generated from selling one more unit of a good.

Total Cost (TC)

The complete cost incurred by a firm in the production of goods.

Marginal Cost (MC)

The change in total cost resulting from the production of one additional unit.

Profit Maximization Condition

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

Economic Profit

The difference between total revenue and total cost, accounting for both explicit and implicit costs.

Price Effect

The loss of revenue that occurs when lowering the price affects all previous units sold.

Output Effect

The additional revenue gained from selling extra units when price is lowered.

Elastic Demand

A situation where a change in price results in a significant change in quantity demanded.

Inelastic Demand

A situation where a change in price has a relatively small effect on the quantity demanded.

Monopoly Price (Pm)

The price charged by a monopolist, determined by the demand curve at the profit-maximizing quantity.

Average Total Cost (ATC)

Total costs divided by the quantity of output produced.

Deadweight Loss (DWL)

Lost economic efficiency when equilibrium is not achieved or is not achievable.

Price Discrimination

The practice of charging different prices to different consumers based on their willingness to pay.

Antitrust Laws

Regulations that promote competition and prevent monopolistic practices.

Marginal Cost Pricing

Setting the price equal to the marginal cost to achieve efficient output.

Average Cost Pricing

Setting the price equal to average total cost, allowing the firm to break even.

Public Ownership

When the government owns and operates a monopoly, often leading to changes in efficiency.

Rent-Seeking

The efforts of a firm to increase its share of existing wealth without creating new wealth, often through lobbying.

Perfect Competition vs. Monopoly

In perfect competition, firms are price takers, whereas in monopolies, firms are price makers.

Consumer Surplus

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

Producer Surplus

The difference between what producers are willing to accept for a good or service and what they actually receive.