Flashcards on Monopoly Market Structures and Public Policy

Monopoly Market Structures & Public Policy: A Student Guide

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What is imperfect competition?

A market structure where firms differentiate their product and have some influence over price; it includes various degrees such as monopoly at one end

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Monopoly Market Structure

23 cards

Card 1

Question: What is imperfect competition?

Answer: A market structure where firms differentiate their product and have some influence over price; it includes various degrees such as monopoly at one end

Card 2

Question: How is a strict monopoly defined?

Answer: A market structure with only one firm and no close substitutes for its product.

Card 3

Question: How can a firm exercise monopoly power without being the only firm in the market?

Answer: By being the dominant firm in the market so it can influence price (price maker) despite not being the sole seller.

Card 4

Question: What market share threshold may trigger regulatory investigation for excessive market power?

Answer: Firms accounting for over 25% of market share may be investigated because of the risk of too much market power.

Card 5

Question: How is market share defined?

Answer: The proportion of total sales in a market accounted for by a particular firm.

Card 6

Question: What is market power?

Answer: The ability of a firm to raise the price of its product without losing all its sales to rivals.

Card 7

Question: What is the difference between a price taker and a price maker?

Answer: A competitive firm is a price taker (cannot set price), whereas a monopoly firm is a price maker (can influence price).

Card 8

Question: What is the fundamental cause of monopoly?

Answer: The presence of barriers to entry that prevent other firms from entering the market.

Card 9

Question: List the four sources of barriers to entry that can create a monopoly.

Answer: 1) Ownership of a key resource; 2) Government grants exclusive rights; 3) Cost advantages that make a single producer more efficient (natural monopoly

Card 10

Question: Why are monopolies rarely caused by exclusive ownership of a key resource in practice?

Answer: Although possible, exclusive ownership of a key resource is an uncommon practical cause of monopolies.