monopoly

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5 Terms

1

characteristics

  • firms are price makers

  • 1 firm supplying all goods in the market

  • goods are differentiated

  • high barriers to entry/exit

  • imperfect information

  • profit maximiser

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2

disads

  • price is greater than marginal cost = monopoly is charging higher than cost - higher prices for consumers

  • lower consumer surplus

  • restricts output = low choice, risk of quality being low

  • resources not following consumer demand, allocatively inefficient

  • productively inefficient MC not equal to AC

  • foregoing economies of scale

  • x inefficient = producing beyong average cost curve

  • lack competitive drive, dont need to reduce waste

  • may have monopsony power = exploiting workers

  • can gain political power to protect vested interest

  • potential diseconomies of scale

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3

ads

  • dynamically efficient = can reinvest supernormal profits in new capital investment

  • economies of scale = lower costs

  • if they innovate consumers benefit from more choice = dynamically efficient

  • reward of getting a patent can encourage innovation

  • government regulation can force monopolies to be fair = fair to everyone

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4

examples

  • microsoft in 1980s a monopoly charging high prices for office

  • farmers for supermarkets getting recieving low prices for their products (monopsony power)

  • IT giants having political power = X, google, meta having control over media

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5

monopoly deadweight welfare loss

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