Question

Answer the following questions

What are the features of monopoly?

Answer 1

The following are the features of a monopoly:

i. Single seller/firm/industry - In a monopoly, there exists only one seller or a group of individuals owning a single firm.
ii. Price maker - Since a monopolistic firm is the only firm in the market, it has total freedom to fix the price level that can maximise its profit. Therefore, it can be said that a monopolist firm is a price maker.
iii. 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 markets segments and determines the price of his product accordingly.
iv. Price discrimination - A monopolistic firm enjoys the freedom to engage in price discrimination. That is, it can sell the same product to different buyers at different prices at different time periods.
v. Restricted entry of new firms- The entry into the monopolist market is restricted. In other words, no new firm can enter the monopoly market. There may be various legal barriers such as, patent rights, cartel laws, exclusive rights, etc. to restrict the entry of the new firms.
vi. Possibility of super normal profits: A monopolist firm has complete control over his decisions regarding price and output. The decision is taken taking into consideration the profit motive. At times higher price is charged and at times supply is restricted to earn greater profits.
vii. 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.