Question

Briefly list and explain the characteristics of a monopoly and its meaning to the monopoly model. Please explain in simple terms, with examples to help me understand

Answer 1

Monopoly is a market in which there is a single seller of a product with no close substitutes in the market.

For example - suppose, there us only one firm dealing in the sale of cooking gas in your town, electricity supply from one agency that is Electricity board.

Characteristics of monopoly -

a. One seller and large number of buyers-

There should be a single producer of a commodity. But the buyers of the product are ib large number. Consequently, no buyer can influence the price of the product.

b. Restrictions on the entry of new firms -

There are some restrictions on the entry of new firms into ths monopoly industry. Generally, thers are patent rights granted to the monopoly firm. Or, a monopoly firm has exclusive control over a technique(of production) or over the raw materials needed for production.

c. No close substitutes -

A monopoly firm produces a commodity that has no close substitutes. Example - there is no close substitute of railways as a bulk carrier.

d. Full control over the prices -

Since the monopolist alone produces the commodity in the market, a monopolist has full control over its price. A monopolist thus, is a price maker. He can fix whatever price he wishes to fix fir his product.

e. Possibility of price discrimination -

Many a time, monopolist charges different prices from different consumers. It is called price discrimination. Price discrimination refers to the practice by a seller of charging different prices from different buyers for the same good.