Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsMarket5 Marks
Question
Explain Characteristics of Monopoly.
✓
Answer
Characteristics of monopoly:
$1. $ Only one producer or seller and numerous buyers:
In a monopoly, there is only one seller or producer of the product and , goods. He controls the entire supply of the product.
Since there is only one seller, there is no competition in the market. As a result, the seller or the producer controls the price of the product.
The producer or seller can decide the price of the product and is known as the ‘Price Maker’ of the market.
When there are countless buyers in the market, the importance of a single buyer becomes negligible.
Under such circumstances, customers compete with each other to buy the product. Since buyers have no choice but to buy from the only seller, they cannot affect the price of the product.
$2.$ Absence of substitute goods:
In monopoly there are no close substitute goods available. However, the way there is imperfect monopoly and not perfect, close substitutes are present but buyers are ignorant about them.
There may be a very rare possibility for similar product to be available in market. For example, if while buying a railway ticket from a specific company, for a specific time, to a specific location the ticket is unavailable then there is no possibility of having a similar or substitute ticket to the location. However, alternatively one can try by travelling through airplane on the same time to the same location.
$3.$ Restriction over the entry of new firms:
Monopoly means that there is only one firm in the market owing to several restrictions for new firms to enter. Some of these restrictions could be
Government license
Owning specific natural resource
patents and copyrights
Having specific specialized skills, etc.
Monopoly can be ended but it is quite difficult and so the seller can sustain his monopoly for a longer duration.
Due to absence of competition, the seller controls the price and gains super normal profits. In spite of the super normal profits earned in monopoly, other firms cannot easily enter the market due to reasons mentioned above.
Thus monopoly restricts entry of newer firms with factors such as nature, laws, skills and experience.
$4.$ Control over the price or sales:
In order to gain maximum profits, the seller controls the supply of the products.
On the other hand, the seller cannot control both the price and the sales of the products.
In order to sell less products, the firm sets higher prices. At the same time, the firm must set lower price of product in order to sell them in large number.
Moreover, it is not possible to sell a large number of units with high price.
$5.$ Super normal profit:
In a market, when a firm’s average cost is less than it’s average revenue, i.e. $(AC < AR)$ it is a situation of supernormal profits.
In a monopoly market, the producer and seller are the same.
So, the seller can charge high price and earn super normal profits without any competition in both short and long time periods.
$6.$ Price-discrimination:
The policy of a monopolist to charge different prices from customers of different categories/types in order to increase his demand is called price discrimination.
Due to absence of competition, the seller can charge different prices on the same product, depending on its use or form.
Thus, the seller adopts the concept of price discrimination and earns higher profit. For example, doctor, lawyer, etc. can charge different fees for similar problems.
$7.$ Firm is industry:
A firm is an independent unit of production, whereas an industry is the collection of the firms producing same products.
However in monopoly, the producer and the seller are same. So, the concept of collection of firms does not exist and single firm behaves as a whole industry.
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