Answer to Question #241966 in Python for Nana

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

Monopolistic markets are markets where a particular product or service is offered by only one company.

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

·        A large number of buyers and sellers – There should be a large number of firms and buyers in the market. Therefore, each firm can control its price-output policy to some extent. Each firm in the market follows an independent price policy.

·        Barriers to entry and exit – There should be obstacles that prevent other companies from entering the market. These barriers of entry include government licenses, patents, copyrights, and significant start-up costs. When one supplier controls the production and supply of a particular product or service, other companies are unable to enter the monopolistic market. If the government believes that the product or service provided by the monopoly is essential for the welfare of the public, the company may not be allowed to exit the market.

·        Profit maximizer - In a monopolistic market, the company should be able to maximize profits. Due to a lack of competitors, the company can set higher prices than expected and earn higher profits.

·        Product differentiation – A monopolistic competition should have product differentiation, which refers to a situation when the buyers of the product differentiate the product from the other. The products from the various firms in a monopolistic competition should be slightly different from others.

·        Unique product – In a monopolistic market, the product or service provided by the company should be unique. There should be no close substitutes available in the market.

·        Lack of perfect knowledge – The buyers and sellers in a monopolistic market should not have perfect knowledge of the market. The buyers should not know about the different products, their qualities, and prices.