Monopoly questions - First year Economics unit

I'd like to ask for some help on these two questions on monopoly markets.

For the first question I could mention about how monopolies are price makers and this could mean that they can set their prices very high which will not be fair on customers. I'm not sure what else there is and which diagram to pick.

For B, I have a rough idea but not sure what to put.

Any help would be highly appreciated - plus reps will be given


A) Explain, with the use of a diagram, the reasons why a monopoly is illegal per se in the United Kingdom.

B) Discuss how a firm may maintain a monopoly profit in the long run. Use a firm of your choosing to contextualise your answer.

Hmm, Question A is interesting, never seen a question like that but I assume it's referring more to Oligopolies than Monopolies? Becuase Monopolies on their own are not illegal, they're simply unfavoured to competition. Oligopolies however, can collude and formally fixing prices is an illegal act in the UK according to The Competition Act 1998.

With regards to Question B, there's a 'fest of economics' there as my teacher would say.

The main focus of the essay should be Barriers to Entry that monopolies generally possess.
A strong example to help 'contextualise' your answer would be to consider looking a natural monopoly for your example, such as Royal Mail.
Adding some meat to the bones:
Royal Mail benefit massively from a huge network infrastructure that is already established through their iconic red letter boxes. This keeps average costs very low and for any other firm to try attempt to enter the market. They would require such an infrastructure otherwise will suffer from huge costs. Essentially, the economies of scale for other firms is too high for them to bother attempting. You could talk about the attempt here made by the company 'Whistl' who failed massively trying to compete against Royal Mail when it was initially privatised in 2013.
Evaluate:
Royal Mail continues to make a loss, delivering to rural areas but have a legal obligation to do so. Suggest maybe opportunities here for smaller firms?

Other Points:
- Economies of Scale → allows a firm to maintain profit through charging a higher price than the cost to produce (cost-plus pricing → Keynesian theory)
- Draw a standard monopoly diagram here. (I'll attach one)

That can be evaluated by discussing Diseconomies of scale, a risk through firms becoming too large and costs being incurred through communication failures and other symptoms.

Obviously stick an example that suits you for that too.

Have no idea on your exam board. But if you need to conclude, I'd discuss Oligopolies and the risk of collusion. Or how the size of the business may determine it's monopolistic profit.





Hope this helped!

Monopolies on their own are not illegal

I thought a firm with greater than 25% market share is a legal monopoly where the government/authority can intervene since they have too much market power??

Thanks for this response.

One question- how would you incorporate the diagram into the essay?

The legal definition of a monopoly is a business who owns more than 25% market share, that's correct.
But doesn't necessarily mean the Government will always intervene.
Just by having 25% or more market share, doesn't mean they're doing anything illegal and the Government have no right to simply intervene because they meet the legal definition of being one.

It's when they start behaving like one, where the Government will intervene.