What is the fundamental source of monopoly power?
barriers to entry
The fundamental cause of monopoly is barriers to entry. Barriers to entry have three sources: •Ownership of a key resource. The government gives a single firm the exclusive right to produce some good. Costs of production make a single producer more efficient than a large number of producers.
Do monopolies face a perfectly inelastic demand?
The relationship among price elasticity, demand, and total revenue has an important implication for the selection of the profit-maximizing price and output: A monopoly firm will never choose a price and output in the inelastic range of the demand curve.
Is a monopoly market elastic or inelastic?
Since a monopolist faces an inelastic supply curve (no close substitutes), area A is likely to be larger than area C, making the net benefits of monopoly positive.
Why is monopoly not perfectly inelastic?
Why is the pure monopolist’s demand curve not perfectly inelastic? The demand curve facing a pure monopolist is downward sloping; that facing the purely competitive firm is horizontal, perfectly elastic.
Is elasticity of demand a source of monopoly power?
There are three major sources of monopoly power: (1) the price elasticity of demand (Ed), (2) the number of firms in a market, and (3) interaction among firms.
When a market is characterized by a monopoly?
Definition: A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.
What is an example of natural monopoly?
For example, the utility industry is a natural monopoly. The utility monopolies provide water, sewer services, electricity transmission, and energy distribution such as retail natural gas transmission to cities and towns across the country.
Why do monopolies have inelastic demand?
A monopoly cannot maximize profit in the inelastic range of demand because this involves negative marginal revenue, and by virtue of the profit-maximizing equality between marginal revenue and marginal cost, it requires negative marginal cost, which is just not a realistic possibility.
What is perfectly elastic demand curve?
Perfectly elastic demand curve is horizontal straight line. This is because at the given price the quantity demanded is infinite, even if there is a slight change in the price the demand becomes infinity and hence the curve is flat.
What’s perfectly inelastic?
Definition: Perfectly inelastic demand or supply is an economic condition in which a change in the price of a product or a service has no impact on the quantity demanded or supplied because the elasticity of demand or supply is equal to zero.