What is Monopoly
In an economy a number of market situations exist with monopoly being one of them. Generally speaking a monopoly is a situation in which there is only one seller who covers the whole market share for the supply of a specific product or a service while there are a large number of buyers available for that product. A few examples of monopoly are state electricity board, railways etc.
Now let us discuss monopoly with some of its specific features which are explained in brief below:-
One of the features of monopoly is that the difference between industry and firm vanishes. As you know an industry is an aggregation of all firms who deals in the same kind of product. But in monopoly only one firm exists, so in that case that firm is regarded as industry for that specific product. Another feature of monopoly which distinguishes it from other market situation is that there is no close substitute available for the product. Hence it is clear that a product is a totally isolated product of the market. So we can say that the products manufactured with their copy right but having close substitutes are not a part of monopoly. In monopoly there is a restriction in entry of any firm in the market. No firm can enter the market on its own which eliminates any form of competition. It is also must that there is only one source of supply available for the existence of monopoly. If the source of supply increases to two sources then market situation convert itself into a monopolistic competition. It is known that usually the price of the product is decided by market forces i.e. supply and demand. But in case of monopoly the seller doesn’t act as a price taker but he is rather a price maker which means the selling price is determined by the seller himself. Another important feature of the monopoly is that average revenue and marginal revenue curves are always downward which means that whenever there is an increase in sale of product, there is always a decrease in the price of that product.
As there is decrease in the average and marginal revenue with increase in sale of product there the total revenue increases at a diminishing rate .Hence it is analyzed that total revenue curve is moving upward but at a diminishing rate.