Monopoly Notes Part 1

Sources of monoply power, the diagram and assumptions.

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  • Created on: 28-01-10 16:12
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Concentrated Market: Monopoly 1
Joana, Economics
Concentrated Markets: The Monopoly
Dominance & Market Share: The firm dominates the output of the entire industry, usually considered to have
40%+ market share in their particular industry.
Barriers to Entry: High barriers to entry mean no other firm can enter the industry and try to compete with the
incumbent firm.
Monopolies produce where MC=MR, the profit maximising point.
The monopolist is not being productively
efficient, it is not producing on the lowest
point of the ATC curve.
The monopoly is making supernormal profits
which can be maintained as barriers to entry
prevent other firms from entering and
"creaming" these profits as they would under
perfect competition.
These can all be considered barriers to entry, making the
number of new entrants to the market non-existent or low.
All of these make it difficult for other firms to consider
competing against a monopoly.
This gives the designer/inventor of a product exclusive, temporary rights to the sell and
Patent Laws &
produce the invention/product. Patent laws apply to physical property whereas copyright
refers more to intellectual invention/property such as music lyrics.
Government nationalisation of some firms involves allowing the ban of competition in that
Making use of economies of scale means firms can produce at low costs in comparison
Economies of Scale to potential entrants. They can then limit price their goods (setting a price so low other
& Limit Pricing firms will not be able to compete with them) and discourage any entrant from trying to
enter the industry.
Any high fixed costs or sunk costs make it expensive for potential entrants to attempt
High Sunk Costs entering the industry. Sunk costs are irrecoverable making entering the market too
expensive for potential entrants.
Legal Monopolies A legal monopoly is one with only 25% allowable market share.
Control of an
If the monopoly has control of a needed raw material within their industry, new entrants
Essential Raw
find it difficult to find alternative suppliers and therefore will not enter the industry.
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