Monopoly

6 Characteristics of a monopoly

1. Single seller

2. Unique product

3. High Barriers to Entry

4. Price Maker

5. Market Power

6. Long run Profitability

Where is the profit maximising equilibrium?

MR = MC

What is 3rd degree price discrimination?

Charging different prices to different groups of consumers based on their willingness to pay

Conditions necessary for 3rd degree price discrimination

1. Market segmentation

2. Price discrimination

3. No arbitrage

What is meant by market segmentation?

The firm must be able to segment the market into distinct groups with different price elasticities of demand

What is meant by no arbitrage?

No resale between segments

Benefit of 3rd degree price discrimination to producers

They can capture more consumer surplus which may increase profits

Benefit of 3rd degree price discrimination to consumers

Consumers in the less elastic group benefit from lower prices

Disadvantage of 3rd degree price discrimination to consumers

Consumers in the more elastic group pay higher prices, which can lead to reduced consumer surplus 

What is a natural monopoly?

When a single firm can efficiently serve the entire market due to significant economies of scale

Key characteristics of a natural monopoly?

1. High fixed costs relative to variable costs

2. Declining average costs with increasing production

3. In industries like utilities and infrastructure

How do natural monopolies benefit consumers?

By providing services at lower costs than multiple competing firms would achieve

What is a monopsony?

When there is only one buyer in the market, and other than this, it has the same basic characteristics as a monopoly

2 Main thing monopsony’s can do?

1. Prevent new firms from entering the market

2. Aim to maximise profit

When do firms mostly experience monopsony power?

When they buy a large percentage of the market