October 13, 2010Economic Theoryby EconomyWatch

Concept of Monopoly

The concept of Monopoly deals with a steady market condition where only one good or service provider exists, to rule the industrial sector single-handedly, without undergoing any sectoral competition. The characteristic features of the Theory of Monopoly are:

Absence of feasible products acting as replacements or substitutesLack of competition on the economic levels, with respect to the availability of goods or servicesMonopolists are basically price-makers of their own products


Multiple forms of Monopoly:

Monopoly is a commercial term. Its various forms are:Government Monopoly: These monopolies are solely reserved by the government, for it to venture independently and all alone.

Government-granted Monopoly or Legal Monopoly: It is usually granted by the government of a country. Sanctioned on the state levels, this monopoly encourages investment in enterprising commercial endeavors.

Contemporary views on the Theory of Monopoly:

The modern concepts on the Theory of Monopoly says that if a monopoly is not safeguarded from competitions by restrictions on government levels, it not only subject to possible competitions but is prone to exploit the consumers and earn huge profits.

General assumptions about the monopoly model:

Similarity in the price levels for all buyers
Necessity of multiple purchasers
Necessity for asymmetric data0

Process of price fixing in monopoly:

A monopolist is a price maker as opposed to price taker in perfect competition. The price is a single one and is fixed at a point where the Marginal Cost (MC) is equivalent to the Marginal Revenue (MR).

Natural Monopoly:

The concept of Natural Monopoly gives birth to a condition where long-term and descending marginal cost characterizes the production all through the pertinent output range. Under such circumstance, a laissez-faire policy results in the rise of single sellers.

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