Monopoly is a single seller and large number of buyers. There is a single seller producing a commodity that has no close substitute. The monopoly market is still solely by mutually beneficial exchange of firm exist and many. Besides that, investigate the impact of a relaxation of the multiple firms assumption on equilibrium.

Introduction to monopoly

Monopoly is a form of market structure where there is a single seller producing a commodity that has no close substitutes. There is no difference between firm and industry and monopoly form as imperfect market. Besides that, monopoly is the sole provider of goods and services.

Characteristics of Monopoly

There are some characteristics of monopoly market.

One seller and large number of buyers

The one of monopoly characteristic is one seller and large number of buyers is large and the size of each firm is very small. The number of buyers also large and this firm cannot influence the market price. So basically, individual firm does not bother about the reactions of the firm. Besides that, adjusts its sale to earn maximum profits and the price given under perfect competition. The demand of individual buyers relative to the total demand. And so small that cannot influence the price of the product by his individual action.

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Product has no lose substitutes

The second characteristics is, product differentiation, there is product are close substitutes but not perfect substitutes. Its means, products are alike but not equal. For an example, Colgate toothpaste is slightly different from Darlie toothpaste. Otherwise, similarly dettol soap is different from life buoy soap. But if the buyers can find any substitutes for toothpaste and soap means, may be the differences is real or imaginary but its create attachments. Consumers prefer one product to another, under monopolistic competition. Monopoly cannot exist if there is a competition or any substitute product because consumers or buyers could not find any replacement for the product.

Restriction on the entry of new firm

The third characteristics of the monopoly are, firm under monopolistic are easy to entry and leave the industry. Barriers are not entry is natural or legal restriction that restricts the entry of new firms into the industry. Hence, a firm has legal control over other firms. There is restricting competition in the market.

Advertising

In monopoly market, advertising is depends to the product sold. If the product is good and services means, the monopoly needs make advertisement to inform consumers on the goods. So that, its try to establish goods of its own products. By the advertising, consumers can know their selling costs. However, if the products are not luxury goods such as water service, electricity service, and local telephone service, then the seller no need to create any advertisement. This is because a lot of the buyers know that where are the places and locations to get and purchase these few products.

The Monopolist and Profit Maximization

In the diagram, the quantity of produced and price charged has own control for both of it. That also, entire demand curve for goods and services produced. So that, it will facing a downward slopping demand curve in the diagram. Equivalently, a monopoly never operates in the inelastic portion of its demand curve.

Monopolist Profit Maximization

What happens if the monopolist later faces a demand curve such as D1? In that case, the monopolist cannot cover costs and will go out of business.

Demand, Marginal Revenue, and Elasticity

http://cyro.cs-territories.com/asa2_economics/unit4/images/monopolisticcompetitionlongrun1.png

In the diagram, demand curve is elastic as there many firms. So that, there is lack of close substitutes. The profits shown as abnormal where the shaded area and competitor the short run.

As shown in the graph above, a monopolist facing demand curve D0 will produce quantity Q0 and the price charged will be equal to P0.

Conclusion

All in all, monopoly have four characteristics of structure. Besides that, monopoly is the sole provider of goods and services. The monopoly market is still solely by mutually beneficial exchange of firm exist and many.

Difference between Perfect competition, monopolistic competition, oligopoly, and monopoly

Perfect competition, monopolistic competition, oligopoly and monopoly have their own respectively features. Their characteristic of their four markets is not same. In monopoly, the market structure in which there is only one producer and seller for a product. Oligopoly is only few firms that make up an industry and select group of firms has control over the price. Monopoly and oligopoly has high barriers to entry. Then, monopoly structure is opposite for perfect competition. Perfect competition are has many buyers and sellers, many products that are similar in nature and there are many substitutes.