Answer to Question #275205 in Microeconomics for Trinity James

Question

Respond to the following question in at least three well composed paragraphs: What are the necessary conditions for a monopoly position in the market to be established?

Answer 1

The necessary conditions for a monopoly position in the market to be established:

1. One Seller and Large number of buyers: In monopoly, there should be a single producer of a commodity. He may be alone, or there may be a group of partners or a joint stock company or a state. Thus, there is only one firm under monopoly. But the buyers of the product are in larger number. Consequently, no buyer can influence the price of the product.

2. Restrictions on the entry of new firms: There are restrictions on the entry of new firms into the monopoly industry. As for instance, there are patent rights or exclusive control over a technique or raw material.

3. Full Control over Price: Sincle there is only one firm in the monopoly market, thus a monopolist has full control over the price of the commodity. A monopolist thus, is a price maker. He can fix whatever price he wishes to fix for his poduct.

4. No Close Substitutes: A monopoly firm produces a commodity that has no close substitutes.