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Questions
Explain the main characteristics of a monopoly.
Explain three main features of monopoly.
Explain in detail the features of a monopoly.
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Solution
- Single seller/firm/industry: In a monopoly, there exists only one seller or a group of individuals owning a single firm.
- Price maker: Since a monopolistic firm is the only firm in the market, it has total freedom to fix the price level that can maximize its profit. Therefore, it can be said that a monopolistic firm is a price maker.
- Perfect knowledge: It is assumed that a monopolist has perfect knowledge about the different conditions prevailing in the market. He is well informed about the types of demand prevailing in different market segments and determines the price of his product accordingly.
- Price discrimination: A monopolist enjoys the freedom to engage in price discrimination. In other words, it can sell the same product to different buyers at different prices at different time periods.
- Complete control over market supply: Being a single seller, a monopolist has sole control over the production. The supply of output rests on the monopolist’s decision.
- Possibility of supernormal profits: A monopolist firm has complete control over his decisions regarding price and output. The decision is taken into consideration the profit motive. At times a higher price is charged and at times supply is restricted to earn greater profits.
- Firm is the industry: As the monopoly firm is the single firm in the market, there is no distinction between the firm and the industry.
Notes
Students should refer to the answer according to the question.
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