explain characteristics of monopoly . ( 5 marks question ) .
Answers
Answer:
One Seller and Large Number of Buyers:
The monopolist’s firm is the only firm; it is an industry. But the number of buyers is assumed to be large.
2. No Close Substitutes:
There shall not be any close substitutes for the product sold by the monopolist. The cross elasticity of demand between the product of the monopolist and others must be negligible or zero.
3. Difficulty of Entry of New Firms:
There are either natural or artificial restrictions on the entry of firms into the industry, even when the firm is making abnormal profits.
4. Monopoly is also an Industry:
Under monopoly there is only one firm which constitutes the industry. Difference between firm and industry comes to an end.
5. Price Maker:
Under monopoly, monopolist has full control over the supply of the commodity. But due to large number of buyers, demand of any one buyer constitutes an infinitely small part of the total demand. Therefore, buyers
6. Costs under Monopoly:
Under monopoly, shape of cost curves is similar to the one under perfect competition. Fixed costs curve is parallel to OX-axis whereas average fixed cost is rectangular hyperbola. Moreover, average variable cost, marginal cost and average cost curves are of U-shape. Under monopoly, marginal cost curve is not the supply curve.