10 CHARACTERISTICS OF MONOPOLY

A monopoly is a market structure in which there is only one supplier of a unique commodity.

The following are characteristics of a Monopoly:

1. Only one firm exists in the market

In a monopoly, there is only one firm, and that firm has no competition.

In short, the firm's supply is the same as the market supply

2. The demand curve of a Monopoly is downward-sloping.

The demand curve of a monopoly is downward-sloping indicating that there is an inverse relationship between price and quantity.

Furthermore, because there is no competition, a monopolist faced a less elastic demand than a monopolistic competitor 

3. Goods sold in Monopoly do not have close substitutes.

Goods sold in Monopoly are unique because they have no close substitutes. 

This is because there is no competition in the market 

4. Very high barriers to entry exist in Monopoly

Monopoly has high barriers to entry, making it difficult, if not impossible, for new firms to enter the market.

5. Monopolists are price makers

A monopolist has more control over the market prices than any other market structure.

If prices are too low, he may reduce output, resulting in lower market output and higher prices.

Moreover, the absence of competition gives monopoly additional market power.

6. Distinction between industry and firm is irrelevant 

There is only one firm in a monopoly. In effect, the monopolist supply is the market supply.

Thus, the distinction between industry and firm is not relevant in Monopoly.

7. A monopoly can also suffer Economic loss.

Despite its market power, a monopolist can still earn economic loss if the price it receives is less than its average cost.

Monopolists will also earn economic loss when the fixed costs are so high that the necessary price would be outside the range that the consumers can afford.

8. Monopoly can price discriminate

To price discriminate, a firm must meet three conditions: first, it must have sufficient market power; second, it must be able to restrict resale; and third, it must be able to divide its market into elastic and inelastic segments.

Monopoly has all of these characteristics and hence can price discriminate.

Indeed, among the four market structures, a monopoly has the most power to price discriminate. 

9. Monopolist is not allocatively efficient

Allocative efficiency means producing the goods most preferred by society.

A monopolist is not allocatively efficient because it does not produce at the output where price equals marginal cost.

10. Monopoly lacks productive efficiency

Monopolists are productively inefficient since they do not produce at the output level where marginal cost equals long-run average cost.

Remember that productive efficiency means producing without waste.

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