A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute
WHY MONOPOLY ARISES?
- Sometimes monopoly arises due to government regulation. Government can give a single firm exclusive right to produce or exclusive right to distribute
- Natural monopoly– cost of production makes a single producer more efficient than a large number of producer
- Monopoly may arise when important resource is owned by a single firm.
Due to the presence of a single seller in the market, the market demand curve and the demand curve of the firm will always coincide. Since market demand curve is always negatively sloped so the demand curve for the monopolist will also be negatively sloped. it means that to sell more of output monopolist has to reduce price and price is reduced not only for additional unit but for all previous units as a result marginal revenue is less than price for the monopolist.
2.ENTRY IS RESTRICTED-
In a monopoly market entry for the new firm is restricted as a result monopolist will continue to earn super natural profit in a long run.
3.LARGE NUMBER OF BUYERS-
Although there is only a single seller in the market but the number of buyers in the market is very large. thus a single buyer forms only a very small part.
4.NO CLOSE SUBSTITUTES-
There are no close substitutes of the product produced by the seller. Therefore, the cross price elasticity between the product of the seller and others is negligible or equal to zero.
5.FIRM IS THE INDUSTRY AND THE PRICE MAKER-
There is no more a difference between a firm and an industry. The control on the supply of the product is in the hands of the monopolist. Furthermore, buyers have little or no influence on the price. Therefore, firm is the price maker.
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