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ECO511 Economics For Business

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Monopoly can be defined as a market condition where one single seller supplies the goods and services in the market. In monopoly, there is only single seller producing unique product in the market and faces no competition. However, It is not always necessary that monopoly sells unique product but there must not be close substitute.one single firm is the whole industry in the monopoly. Hence, they are the price maker not taker.  

Government creates barrier for new entrants in the monopoly markets and allows the firm to create monopoly. There may be various reason behind this.  For e.g. In order to balance the economy of the country or motive to serve its citizens like generating employment opportunities, control the inflation or may tries to collect revenues (Amir, 2013).

Exclusive ownership:

When the firm have the ownership that is exclusive or the resources that is scare, then the monopoly is created as other firms lacks the resources.

Copyright and Patent:

Copyright or patent of the intellectual property also leads to monopoly. Also the public franchise acts as a barrier in the monopoly market.

Network Externalities:

A firm having  strong network externalities like, strong and long term connection with raw materials supplier also enhances in formation of monopoly.

Economies of Scale:

when the firm has economies of scale, they can get bigger and bigger to have efficiency in the work. Bulk buying, product specialization etc. also helps in furnishing (Pettinger, 2008).

Different types of firms uses their own way of determining the price and output being based on the nature of their firm. Price and output determination under perfect competiition and monopoly are different

Interaction of demand and supply curve determines the price and quantity to be produced under the perfect competition. As there are many competitors in the market, firms are price taker not maker and cannot set their price and quantity production. There arises many substitute products. Those firms that provide quality products at comparatively cheaper price exists and the one that cannot fulfill these terms cannot survive.

Price is determined by the seller itself. It has good control in the supply of the product and can influence the demand to some extent but cannot fully control the demand in the market. There must be careful study of the elasticity of demand of their product before setting the prices.

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