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What is a monopoly Essay

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Monopoly is at the opposite end of the spectrum of market models from perfect competition. A monopoly firm has no rivals. It is the only firm in its industry. There are no close substitutes for the good or service a monopoly produces. Not only does a monopoly firm have the market to itself, but it also need not worry about other firms entering. In the case of monopoly, entry by potential rivals is prohibitively difficult. A monopoly does not take the market price as given; it determines its own price.

It selects from its demand curve the price that corresponds to the quantity the firm has chosen to produce in order to earn the maximum profit possible. In assuming there is one firm in a market, we assume there are no other firms producing goods or services that could be considered part of the same market as that of the monopoly firm. The result is a model that gives us important insights into the nature of the choices of firms and their impact on the economy.

There are some Advantages of a Monopoly. The Monopolies avoids duplications and hence wastage of resources.

Enjoys economics of scale, due to it being the only supplier of the product or service in the market, makes many profits and be used for research and development to maintain their status as a monopoly. They also use price discrimination to benefit the weaker economic section of society. To avoid competition, they can afford to invest in the latest technology and machinery. There are some Disadvantages of a Monopoly. Monopolies have poor levels of service, there is no consumer sovereignty, the consumers are charged high prices for such low quality goods, and lack of competition could lead to low quality goods, as well as out dated goods.

First off, any market type can see super normal profits in the short-run. What is more important is what happens in the end. Pure monopolies are not the only monopoly that can make profits. Natural Monopoly or a price discriminating monopoly can make profits as well. The only difference between them is “why” they are monopolies to begin with. Oligopolies are not monopolies, although they do tend to make above normal profits. Monopolistic competition does not yield these types of profits in the end. Economic profit goes to zero here in the end because there is a lack of barriers here to prevent competition from entering.

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