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13 Cards in this Set
- Front
- Back
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A monopoly is a
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...market with many buyers and one seller
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In a monopoly the producer is a...
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...price maker
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Price maker:
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The agent can restrict supply in order to raise price and maximise profits
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Monopolists receive...
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...abnormal profits
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Abnormal profits:
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Profits above those one would receive in perfect competition/above opportunity cost for entrepreneur
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Why do monopolies form?
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=(NATURAL MONOPOLY)=
-Niche market -Small market (e.g. village pub) -Market is too small for more than one firm to exploit economies of scale ================================== -Success of company (e.g. Apple) -Predatory pricing (e.g. Starbucks) |
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Advantages of monopolies:
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-May service remote (rural) areas which would not be cost efficient to serve with competition
-Prevents waste duplication of resources -May invest more in R&D as they have abnormal profits => Better quality product -May charge lower prices due to EOS and decreased LRAC |
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Disadvantages of monopolies:
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-May set an inequitable price
-May provide low quality products -No incentive for technological progress -Lack of consumer sovereignty -Less variety -Less quantity exchanged |
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Perfect competition is...
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...when a market has many buyers and many sellers such that no single economic agent can influence the market outcome
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In PC, demand for a firm is...
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...perfectly elastic => Avg. revenue = Price = Demand
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Assumptions in PC:
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-All firms are price takers
-Homogeneous g/s -Perfect information => All firms have same technology & same costs (including costs of FOP and opportunity cost for entrepreneur of his time/investment) -Therefore Profit must me same/higher than another occupation so that the entrepreneur stays in current occupation |
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In PC, the AC curve =
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supply curve
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Price taker
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The agent accepts the market price (and cannot influence it)
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