2. a market structure in which there is only one seller of a good or service that has no close substitutes and entry to the market is completely blocked. Monopoly: a market structure in which there is only one seller of a good or service that has no close substitutes and entry to the market is completely blocked.

3. Consists of a single firm Therefore, market demand = monopolist’s demand Downward sloping demand curve Can fix price at which it sells product Quantity sold depends on the market demand.

4. Depends on how narrowly the industry or market is defined. * Global markets * National markets * Regional markets * Local markets Services Services usually have narrower markets – why? Only a monopolist if entry into the market is blocked.

5. profit-maximising rule Produce where MR = MC - profit-maximising rule shut-down rule Provided that AR > AVC (short run) or AC (long run) - shut-down rule * Cost structure same as any other firm. * Revenue structure differs from perfectly competitive firm.

6. * Monopolist is only supplier of a product * Demand curve for product = market demand curve for market * Downward sloping demand curve means additional quantity of output only sold if price lowered * Lower price applies to all units of output * Therefore MR from sale of extra unit < price at which all units of the product are sold

10. * The price which consumers are willing and able to pay - indicated by the demand curve. * MR = MC at a price of P 1.

11. * Compare AC with AR or TC with TR at profit maximising point * AR > AC at Q 1 therefore economic profit earned (C 1 P 1 M 1 K 1 )

12. * Perfect competition * Perfect competition - economic profit competed away in LR. * Monopoly * Monopoly - entry blocked economic profits can continue in LR. * Can achieve economies of scale - ↓ average cost curve * Firm will produce where MR = long-run MC.

13. * Monopolist chooses combination of price/output where profit is maximised. * Subject to the demand constraint. * Monopolist is a price maker - does not move along supply curve as price of the product changes.

14. same product different consumers different prices * Profitable to sell same product to different consumers at different prices. buyers’ valuationscost differences * Only occurs when price differences are based on different buyers’ valuations. NOT based on cost differences. * Attempts to capture all/part of consumer surplus.

15. Firm must be a price maker/setter * Won’t work in perfect competition Consumers/markets must be independent * Consumers in the low-priced market must not be able to resell at higher prices. * Must be able to divide the market. * Easier for services.

16. 1 st degree price discrimination (discrimination among units) * Each consumer charged maximum price they are prepared to pay. higher * Only done if firm can obtain higher price than equilibrium market price. * Perfect price discrimination = consumer surplus eliminated.

18. 2 nd degree price discrimination (discrimination among quantities) * Firm charges customers different prices according to how much they purchase.

19. 3 rd degree price discrimination (discrimination among buyers) * 2 or more independent markets - separate price charged in each market * PED must differ between the different markets

21. a situation that arises where it is most cost efficient for a single firm to produce all the output in an industry or market. Natural monopoly: a situation that arises where it is most cost efficient for a single firm to produce all the output in an industry or market.

22. Even when P = 0, D ≠ minimum AC (max economies of scale). Even when 1 firm supplies all output, still not operating at minimum efficient scale. More than one firm = higher average cost of production. Eg’s: public utilities like electricity and water.

23. Possibility of inefficient levels of production and large economic profits. Two options… * Government can produce the good itself. * Leave production to a private firm, government regulates.

24. Where should the price be set? * Allocative efficiency * Allocative efficiency when P = MC * Productive efficiency * Productive efficiency where AC is minimum. * Productive efficiency cannot be reached therefore P = MC to ensure allocative efficiency. * This is called the marginal pricing rule.

26. 1. Government supply good/service - tax revenue compensates for losses. 2. Leave production to private firm and gov. subsidise losses. 3. Average cost pricing (P = AC). Normal profit earned, no subsidisation would be necessary. 3. Average cost pricing (P = AC). Normal profit earned, no subsidisation would be necessary.  AC pricing gives no incentive to minimise costs. Higher costs will = higher prices. Also disadv. of 1 & 2. 4. Price discrimination. Supplier captures consumer surplus in certain market segments and uses this to subsidise consumers in other market segments.