MONOPOLY_2023_new_syllabus

MONOPOLY

Characteristics of Monopoly

• There is only one firm in the market.

• The monopolist sets the price of its product (monopoly/market power).

• The product is unique with no close substitutes.

• Strong barriers prevent competitors from entering the market.

• Monopolist advertises to remind consumers of its product.

Market Failure

• Resources are not allocated efficiently.

• Social surplus is not maximized.

Market Power (Monopoly Power)

• The ability to control the price of the product sold (i.e., raise the price above marginal cost) or limit the quantity sold.

Barriers to Entry

• Economies of scale.

• Natural monopolies.

• Legal barriers.

• Branding.

• Anti-competitive behavior.

Patents

• Legal protection for a finite period to the registered producer or user of a newly invented product or process.

• Example: an inventor, Henry Detreux, patented a traction vehicle in 1895.

Copyrights

• Legal protection for a limited time, preventing others from using or plagiarizing published works without permission.

Trademarks

• Unique designs that identify a business or its products, which can be legally registered and protected from copying.

State Monopoly

• A situation where the government grants the right to produce or trade a product to a single firm (often owned by the government).

Brand Loyalty

• The faithfulness of consumers to a particular brand, demonstrated by repeat purchases.

Break-Even Analysis

• Understanding the point at which total revenue (TR) equals total costs (TC).

• Formula: Profit = TR - TC

Abnormal Profit

• Visual representation of costs and revenues showing short-run and long-run abnormal profits compared to marginal cost (MC) and average total cost (ATC).

Loss (Short-Run)

• Conditions where total revenue does not cover total costs, leading to a financial loss for firms.

Allocative Inefficiency - Market Failure

• Illustrates the differences in consumer surplus and producer surplus in monopolies vs. perfect competition, leading to welfare loss.

Natural Monopoly

• Occurs due to large economies of scale, reached when one firm can supply the market more efficiently than multiple firms.

• Examination of natural monopolies as semi-public goods and the associated costs and revenues.

Advantages of Monopoly

• Theoretical benefits of monopolies, including:

  • Economies of scale.

  • Product development and innovation.

  • Greater efficiency and potentially lower prices.

  • Competition for corporate control.

Absence of Supply Curve in the Monopoly

• Discussion of how price and quantity in monopolies are determined by the monopolist's demand curve rather than a traditional