Notes for 2.11.2 Monopoly - single or dominant firm, high barriers to entry, no close substitutes - IB | RevisionDojo
2.11.2 Monopoly - single or dominant firm, high barriers to entry, no close substitutes Notes
Definition
Monopoly
A market structure with one single dominant firm that has substantial control over output prices. The firm sells a uniqueproduct and is protected by high barriers to entry.
Monopoly is another extreme market structure, with the lowestlevel of competition as there is onebigdominantfirm in the market.
Monopoly is a market structure which primarily creates negative externalities, but also can create positive externalities sometimes.
Therefore, it is at marketfailuremost of the time.
The defining characteristics of a monopoly is that:
There is one dominant firm in the market
They have high market power
There are high barriers to entry and exit in the market
They produce a unique product
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Note
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Questions
Recap questions
1 of 5
Question 1
Recap question
A monopoly sets output where MR=MC, resulting in P>MC. Which of the following best describes the allocative outcome of this decision?
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Note
A monopoly is a market structure where a single or dominant firm controls the entire market for a unique product. This firm faces no close substitutes and is protected by high barriers to entry.
In a monopoly, the firm is the industry - it has complete control over supply and price.
Monopolies are rare in the real world but can exist in certain situations.
They represent the extreme end of the market structure spectrum, opposite to perfect competition.
DefinitionBarriers to EntryObstacles that make it difficult or impossible for new firms to enter a market.
AnalogyThink of a monopoly like owning the only water well in a desert town - you control the sole source of water, and no one else can easily dig a well.
