Monopoly

Assumptions of the model

Describe, using examples, the assumed characteristics of a monopoly: a single or dominant firm in the market; no close substitutes; significant barriers to entry - see pages 1 to 2 of the document '1.5. Monopoly'

Does Facebook have a monopoly?

Barriers to entry

Describe, using examples, barriers to entry, including economies of scale, branding and legal barriers - see pages 3 to 4 of the document '1.5. Monopoly'
Complete Task 1 on page 2 on page 1 to 2 of the document '1.5. Monopoly'

Revenue curves

Explain that the average revenue curve for a monopolist is the market demand curve, which will be downward sloping - see page 5 of the document '1.5. Monopoly'
Explain, using a diagram, the relationship between demand, average revenue and marginal revenue in a monopoly - see pages 5 to 6 of the document '1.5. Monopoly'

Complete Task 2 on page 6 of the document '1.5. Monopoly'
Explain why a monopolist will never choose to operate on the inelastic portion of its average revenue curve - Complete tasks 3 & 4 on page 7 of the document '1.5. Monopoly'

Profit maximisation

Explain, using a diagram, the short- and long-run equilibrium output and pricing decision of a profit maximising (loss minimising) monopolist, identifying the firm’s economic profit (abnormal profit), or losses - see page 8 of the document '1.5. Monopoly'

Explain the role of barriers to entry in permitting the firm to earn economic profit (abnormal profit) - see page 8 of the document '1.5. Monopoly'
Complete Tasks 5 to 7 of the document '1.5. Monopoly'

Revenue maximisation

Explain, using a diagram, the output and pricing decision of a revenue maximising monopoly firm - see pages 12 to 14 of the document '1.5. Monopoly'
Compare and contrast, using a diagram, the equilibrium positions of a profit maximising monopoly firm and a revenue maximising monopoly firm - see pages 12 to 14 of the document '1.5. Monopoly'

Calculate from a set of data and/or diagrams the revenue maximising level of output - see page 12 of the document '1.5. Monopoly'

Natural monopoly

With reference to economies of scale, and using examples, explain the meaning of the term “natural monopoly” - see page 15 of the document '1.5. Monopoly'
Draw a diagram illustrating a natural monopoly - see page 16 of the document '1.5. Monopoly'

Monopoly and efficiency

Explain, using diagrams, why the profit maximising choices of a monopoly firm lead to allocative inefficiency (welfare loss) and productive inefficiency - see page 18 of the document '1.5. Monopoly'

Explain why, despite inefficiencies, a monopoly may be considered desirable for a variety of reasons, including the ability to finance research and development (R&D) from economic profits, the need to innovate to maintain economic profit (abnormal profit), and the possibility of economies of scale - see page 19 of the document '1.5. Monopoly'

Policies to regulate monopoly power

Is Amazon a monopoly?

Mergers and their effect on competition - what are the arguments for and against this merger (effect on stakeholders)?

How Google is building a browser monopoly?

Tech companies and monopolies

Evaluate the role of legislation and regulation in reducing monopoly power - see pages 20 to 23 of the document '1.5. Monopoly'
Complete Tasks 8 & 9 on pages 27 - 30 of the document '1.5. Monopoly'

The advantages and disadvantages of monopoly compared with perfect competition

Draw diagrams and use them to compare and contrast a monopoly market with a perfectly competitive market, with reference to factors including efficiency, price and output, research and development (R&D) and economies of scale - see pages 24 to 26 of the document '1.5. Monopoly'

Costs and benefits of monopoly

The story of Enron

Files to download

1.5.Monopoly.docx

monopoly.ppt