Monopoly | A-Level Economics Notes

These revision notes cover everything you need to know about Monopoly for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.

What is a pure monopoly?

Sole seller in the market

What is monopoly power?

When a firm has 25% or more market share.

What are the charactertics of a monopoly?

1. high barriers to entry
2. product differentiation
3. imperfect information
4. firms are price makers

What is the diagram for a monopoly in the long-run?

Is a monopoly efficient?

1. monopolies are not allocatively efficient
   1. monopolies produce at the point where MC=MR
   2. at this point, MC does not equal AR
   3. this means that consumers are over-charged
   4. price could be lower and output could be higher
   5. consumer surplus is not maximised
   6. consumer surplus is the difference between the price consumers are willing to pay and what they actually pay
   7. for example, Apple products are expensive so not many consumers are able to benefit from them.
2. monopolies are not productively efficient
   1. monopolies produce at the point where MC=MR
   2. at this point, MC does not equal AC
   3. therefore monopolies are not productively efficient
   4. this means that monopolies are not producing the maximum possible output given their factors of production
   5. this means they are not fully exploiting their economies of scale
   6. since costs are higher than they could be, consumers pay higher prices for goods and services and there are more unemployed resources in the economy.
3. monopolies are dynamically efficient
   1. monopolies make supernormal profit in the long
   2. as shown by the shaded rectangle
   3. this means that monopolies are able to re-invest into their products or technology
   4. this means that customers can benefit from innovated products and firms can benefit from greater monopoly power

Summary questions

1. What is a pure monopoly?
2. What is monopoly power?
3. What are the charactertics of a monopoly?
4. What is the diagram for a monopoly in the long-run?
5. Are monopolies efficient?

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