Question

What are the two main features of monopoly?

Hint:

In a monopoly, the firm is both the sole seller and the price maker, controlling supply and price without competition.

Answer 1

Step 1: Defining Monopoly:
A monopoly is a market structure where a single firm is the sole producer of a particular product or service, with no close substitutes available. This gives the monopolist significant control over the price and supply of the good or service.
Step 2: Two Main Features of Monopoly:
- Single Seller: In a monopoly, there is only one firm that controls the entire supply of a good or service. This firm is the market maker, determining the price and quantity of the good or service. For example, a local water utility company may be the only provider of water in a particular area.
- Price Maker: A monopolist is a price maker, meaning it has the power to set the price of its product because there are no direct substitutes. This is in contrast to firms in competitive markets, which are price takers. The monopolist's pricing decisions are influenced by the demand curve, as it seeks to maximize profits by choosing the optimal price and output.
Step 3: Final Conclusion:
The key features of a monopoly are the presence of a single seller in the market and the firm’s ability to set prices due to the lack of competition.