A monopoly is a market structure where a single seller controls the entire supply of a product or service with no close substitutes. In this case, the firm is the price maker, and consumers must accept the price set by the monopolist.
> Definition:
A monopoly is a market situation where one firm produces and sells a product for which there are no close substitutes and where entry of new firms is restricted.
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? Types (Kinds) of Monopoly
Type Description
Natural Monopoly Occurs due to natural advantages (e.g., control over raw materials)
Legal Monopoly Granted through government licenses or patents
Technological Monopoly Based on control over production techniques or innovation
Public Monopoly Government-owned services (e.g., electricity, water supply)
Private Monopoly Owned and operated by private individuals or firms
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? Main Characteristics of Monopoly
1. Single Seller – One firm dominates the entire market.
2. No Close Substitutes – The product has no similar alternatives.
3. Price Maker – The monopolist sets the price.
4. Barriers to Entry – Legal, technical, or financial barriers prevent other firms from entering.
5. Restricted Consumer Choice – Consumers depend solely on the monopolist’s offering.
6. Possibility of Supernormal Profits – Due to lack of competition.
7. Downward Sloping Demand Curve – The firm can sell more only by lowering the price.
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? Assumptions of Monopoly
The monopolist knows the market demand.
The cost of production is known and fixed in the short run.
There is no threat of immediate entry of new firms.
The monopolist aims to maximize profit.
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? Price Determination in Monopoly
The monopolist determines price and output based on demand and cost conditions. They produce at the point where:
Profit in Long Run Supernormal possible Only normal profit
Efficiency Productive and allocative inefficiency Full efficiency
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✅ Conclusion
A monopoly offers complete market control to one seller, leading to price-setting power and often reduced consumer welfare. It differs significantly from perfect competition, especially in terms of price, output, entry barriers, and efficiency.
