Hi guys I'm a previous IB student that received a level 7 in the HL Economics course and 44 points overall. This doc has a summary of all of my class notes for the new 2020 Economics syllabus in these hl only micro topics.
Government Intervention In Response To Abuse Of Market Power
Advantages of Large Firms:
+ Economies of Scale (total costs will always increase at higher output levels while average costs
will be very small >> allows cheaper price for consumers in comparison to smaller firms)
+ Highly likely to make abnormal profits in the short & long run >> some of these can be
allocated towards research and development >> consumers benefit from new, innovative
products
Firms in the same industry also benefit from the new technologies >> positive externalities of
production
+ Increased employment
+ Contribute to national GDP
- Industry supply – positive relationship between P & Q
– the industry equilibrium is at the intersection of
MC/AR curves (S/D)
- There is NO supply curve as monopoly/oligopoly
determined
its output by MC = MR rule for profit maximisation.
They can charge different prices depending on the
position of the industry’s D curve >> for the same Q
they can charge a different price
Disadvantages of Large Firms:
- Allocative inefficiency
- Lack of competition >> higher prices, less innovations
- Lower output >> market power makes it possible to restrict output away
from allocative efficiency
- Loss of consumer surplus >> goes towards producer surplus
Monopoly Powers
= when a firm possesses over 25% of the total market share
Abuse of monopoly power = Anti-competitive practises
1. Charging very high prices, price discrimination
2. Reducing prices to a very low level (sometimes below production costs) >> price wars –
prevent new entrants and drive existing competitors out of industry
3. Putting pressure on suppliers so they don’t sell to competitors
- Degree of monopoly power:
o Monopolies – private, unregulated monopolies are illegal, natural monopolies have gov
permission
o Oligopolies – collusive oligopoly acts as 1 monopoly and is illegal
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