Monopoly - AP Microeconomics

What is the relationship between AR and demand curve in a monopoly?

They are the same. Average revenue is price, which equals demand.
What is the demand curve like for a monopolist?

Downward sloping. Monopolist faces entire market demand, which decreases with quantity.
What is the profit-maximizing rule for monopolies?

Produce where $MR = MC$ . Standard profit maximization condition for all firms.
What is a legal monopoly?

A monopoly protected by law. Government grants exclusive rights to operate.
What is a monopoly?

A market structure with a single seller dominating the market. Distinguishes monopoly from competitive markets with multiple sellers.
How does a monopoly affect consumer surplus?

Reduces consumer surplus. Higher prices and lower output decrease consumer welfare.
Identify a regulatory method for monopolies.

Price capping. Government sets maximum prices to protect consumers.
Identify one source of monopoly power.

Control of a key resource. Essential inputs create natural barriers to competition.
Which term describes a monopoly's ability to set prices?

Price maker. Unlike price takers in competitive markets.
Does a monopoly produce at allocative efficiency?

No. Prices above marginal cost create inefficiency.
What condition allows a monopoly to earn long-term economic profits?

High barriers to entry. Prevents competition from eroding monopoly profits over time.
Which concept explains monopoly's benefit in certain industries?

Natural monopoly. Economies of scale justify single-firm production.
What is the natural monopoly?

A monopoly due to economies of scale. High fixed costs make single producer most efficient.
What is a cartel?

A group of firms acting as a monopoly. Collusion creates monopoly-like market power.
How does a monopoly affect producer surplus?

Increases producer surplus. Monopolist captures surplus through higher prices.
How does a monopoly compare to perfect competition in terms of output?

Produces less output. Restricts output to maintain higher prices.
What type of demand curve does a monopoly face?

Market demand curve. Single firm faces entire industry demand.
What is a key disadvantage of monopoly for consumers?

Higher prices. Monopoly power allows pricing above competitive levels.
What is a monopolist's main goal?

Maximize profit. Primary objective of all profit-seeking firms.
What is an example of a government-granted monopoly?

Patent. Intellectual property creates temporary monopoly rights.
What does the Lerner Index measure in a monopoly?

Market power. Measures ability to set prices above marginal cost.
Identify the type of profit a monopoly can earn in the short run.

Economic profit. Can earn above-normal returns due to market power.
What is deadweight loss in the context of monopoly?

Loss of total welfare due to a monopoly's pricing. Results from pricing above marginal cost and reduced output.
State the condition for zero economic profit in monopoly.

$P = ATC$ . When average revenue equals average total cost.
Identify a way to break up a monopoly.

Antitrust laws. Legal tools to promote competition and prevent monopolization.
State the formula for average revenue (AR) in a monopoly.

$AR = \frac{TR}{Q}$ . Average revenue equals price in all market structures.
How is marginal revenue (MR) related to price in a monopoly?

$MR < P$ . Must lower price to sell more units, reducing marginal revenue.
How does a monopoly determine its price?

By setting $MR = MC$ and using the demand curve. Profit-maximizing quantity determines price on demand curve.
State the formula for total revenue (TR) in a monopoly.

$TR = P \times Q$ . Standard revenue formula applies to all market structures.
What is the role of advertising in a monopoly?

To differentiate products and maintain market power. Creates brand loyalty and strengthens barriers to entry.

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