Question

Give the reasons why a monopoly may arise, and provide real-world examples.

Answer 1

Answer: monopoly: monopoly is a market situation where there is only one seller and large number of buyers in the market.

The monopolist has control over the price and quantity of the product and also there is no close substitute of the product. There is barrier to entry so on other firm can enter the market.

   

The following are the reasons which give rise to monopoly:

• Control over the raw materials: if a producer has control over the raw materials which needs for the production of a specific product than he will have monopoly over the production of that good as to earn high profits he will not let other producers to use his raw materials
• Firm enjoying Economies of scale: economies of scale mean decrease in production cost with the increase in output. If a firm is enjoying economies of scale for production his average cost will decrease with the rise in output. He will charge price which will be profitable for him but not sufficient for other firms to enter the market and survive at that prices. So it will be the only firm in the market
• Patents and copyrights: if a firm has copyright or patent for production of a good he will have monopoly in the market these are generally government operated monopolies as government gives them copyright or patent for supply of that particular product in the market.

Real world examples of monopolies are Con Edison which provide electricity in US, Microsoft and government have monopoly over railways, atomic energy etc.(in different countries government have monopoly over different sectors)