Explain the Features of Monopoly. - Economics

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Explain the features of monopoly.

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Solution

Features of Monopoly:-

1. One Seller and Large Number of Buyers:-

The monopolist’s firm is the only firm; it is an industry. But the number of buyers is assumed to be large.

2. No Close Substitutes:-

There shall not be any close substitutes for the product sold by the monopolist. The cross elasticity of demand between the product of the monopolist and others must be negligible or zero.

3. Difficulty of Entry of New Firms:-

There are either natural or artificial restrictions on the entry of firms into the industry, even when the firm is making abnormal profits.

4. Monopoly is also an Industry:-

Under monopoly there is only one firm which constitutes the industry. Difference between firm and industry comes to an end.

5. Price Maker:-

Under monopoly, monopolist has full control over the supply of the commodity. But due to large number of buyers, demand of any one buyer constitutes an infinitely small part of the total demand. Therefore, buyers have to pay the price fixed by the monopolist.

Concept: Forms of Market
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2014-2015 (March)

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PASSAGE

In India, markets for automobiles, cement, steel, aluminium, etc, are the examples of oligopolistic market. In all these markets, there are few firms for each particular product. Duopoly is a special case of oligopoly, in which there are exactly two sellers. Under duopoly, it is assumed that the product sold by the two firms is homogeneous and there is no substitute for it. Examples where two companies control a large proportion of a market are: (i) Pepsi and Coca-Cola in the soft drink market; (ii) Airbus and Boeing in the commercial large jet aircraft market.

Operating systems for smart phones and computers provide excellent examples of oligopolies in big tech. Apple iOS and Google Android dominate smart phone operating systems. Computer operating systems are overshadowed by Apple and Microsoft Windows.

  1. Give examples of oligopolistic market in India (1 mark)
  2. Explain the concept of duopoly with a suitable example from the passage (1 mark)
  3. Express your personal opinion based on the above information (2 marks)

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