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Economics session 8 (Key features of Monopoly (Lack of substitutes:…
Economics session 8
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Key features of Monopoly
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Barriers to entry: Set up by monopolists. If new firms enter the industry, the monopolist will not have complete control of a firm on the supply.
Price Maker: The monopolist decides the price of the product, since it has the market power. This makes the monopolist a price make
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Advantages of Monopoly
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Economies of scale:single seller in the market it leads to economics of scale because big scale production which lowers the cost per unit for the seller. The seller may pass this benefit down to the consumer in terms of a lower price.
R &D :Since the monopolist is making abnormal or supernormal profits, the firm can invest that money into research and development.
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Nature of elasticity of Demand: If demand inelastic, sets a higher price
Monopoly Profit Maximization: Low marginal costs at low levels of production. Marginal costs increase with increasing outputs.
Profit can be increased by either increasing the price, enhance the quality or BOTH.
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