AP Microeconomics Flashcards: Monopoly

What this deck covers

This deck focuses on Monopoly, giving you a quick way to review the definitions, rules, and examples that matter most for AP Microeconomics.

How to use these flashcards

Work through these flashcards in short sessions. Try to answer each prompt before flipping the card, then revisit any cards you miss until the explanation feels automatic.

Flashcard 1: What is the relationship between AR and demand curve in a monopoly?

Answer: They are the same. Average revenue is price, which equals demand.

Flashcard 2: What is the demand curve like for a monopolist?

Answer: Downward sloping. Monopolist faces entire market demand, which decreases with quantity.

Flashcard 3: What is the profit-maximizing rule for monopolies?

Answer: Produce where $MR = MC$. Standard profit maximization condition for all firms.

Flashcard 4: What is the natural monopoly?

Answer: A monopoly due to economies of scale. High fixed costs make single producer most efficient.

Flashcard 5: What is a legal monopoly?

Answer: A monopoly protected by law. Government grants exclusive rights to operate.

Flashcard 6: What is a monopoly?

Answer: A market structure with a single seller dominating the market. Distinguishes monopoly from competitive markets with multiple sellers.

Flashcard 7: How does a monopoly affect consumer surplus?

Answer: Reduces consumer surplus. Higher prices and lower output decrease consumer welfare.

Flashcard 8: Identify a regulatory method for monopolies.

Answer: Price capping. Government sets maximum prices to protect consumers.

Flashcard 9: Identify one source of monopoly power.

Answer: Control of a key resource. Essential inputs create natural barriers to competition.

Flashcard 10: Which term describes a monopoly's ability to set prices?

Answer: Price maker. Unlike price takers in competitive markets.

Flashcard 11: What does the Lerner Index measure in a monopoly?

Answer: Market power. Measures ability to set prices above marginal cost.

Flashcard 12: Does a monopoly produce at allocative efficiency?

Answer: No. Prices above marginal cost create inefficiency.

Flashcard 13: What condition allows a monopoly to earn long-term economic profits?

Answer: High barriers to entry. Prevents competition from eroding monopoly profits over time.

Flashcard 14: Which concept explains monopoly's benefit in certain industries?

Answer: Natural monopoly. Economies of scale justify single-firm production.

Flashcard 15: What is the natural monopoly?

Answer: A monopoly due to economies of scale. High fixed costs make single producer most efficient.

Flashcard 16: What is a cartel?

Answer: A group of firms acting as a monopoly. Collusion creates monopoly-like market power.

Flashcard 17: How does a monopoly affect producer surplus?

Answer: Increases producer surplus. Monopolist captures surplus through higher prices.

Flashcard 18: How does a monopoly compare to perfect competition in terms of output?

Answer: Produces less output. Restricts output to maintain higher prices.

Flashcard 19: What type of demand curve does a monopoly face?

Answer: Market demand curve. Single firm faces entire industry demand.

Flashcard 20: What is a key disadvantage of monopoly for consumers?

Answer: Higher prices. Monopoly power allows pricing above competitive levels.

Flashcard 21: What is a monopolist's main goal?

Answer: Maximize profit. Primary objective of all profit-seeking firms.

Flashcard 22: What is an example of a government-granted monopoly?

Answer: Patent. Intellectual property creates temporary monopoly rights.

Flashcard 23: Identify a way to break up a monopoly.

Answer: Antitrust laws. Legal tools to promote competition and prevent monopolization.

Flashcard 24: What does the Lerner Index measure in a monopoly?

Answer: Market power. Measures ability to set prices above marginal cost.

Flashcard 25: Identify the type of profit a monopoly can earn in the short run.

Answer: Economic profit. Can earn above-normal returns due to market power.

Flashcard 26: What is deadweight loss in the context of monopoly?

Answer: Loss of total welfare due to a monopoly's pricing. Results from pricing above marginal cost and reduced output.

Flashcard 27: State the condition for zero economic profit in monopoly.

Answer: $P = ATC$. When average revenue equals average total cost.

Flashcard 28: Identify a way to break up a monopoly.

Answer: Antitrust laws. Legal tools to promote competition and prevent monopolization.

Flashcard 29: State the formula for average revenue (AR) in a monopoly.

Answer: $AR = \frac{TR}{Q}$. Average revenue equals price in all market structures.

Flashcard 30: How is marginal revenue (MR) related to price in a monopoly?

Answer: $MR < P$. Must lower price to sell more units, reducing marginal revenue.

Flashcard 31: How does a monopoly determine its price?

Answer: By setting $MR = MC$ and using the demand curve. Profit-maximizing quantity determines price on demand curve.

Flashcard 32: State the formula for total revenue (TR) in a monopoly.

Answer: $TR = P \times Q$. Standard revenue formula applies to all market structures.

Flashcard 33: What is the role of advertising in a monopoly?

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