Question

1. What are the characteristics of a monopoly?

2. What are three examples of barriers to entry?

3. What does it mean that monopolies, in general, produce inefficient results for society?

4. What are the characteristics of monopolistic competition?

5. What are the characteristics of oligopoly?

Answer 1

A) What are the characteristics of a monopoly? B) What are three examples of barriers to entry?

A monopoly basically refers to an arrangement in which there is only one producer of a given product or service which could be because of the role of the government, patents or otherwise.

The Characteristics of a monopoly are as follows:-

• A single seller of the Product

Under a monopoly, the total number of sellers as described in the market place is restricted to one only. This Supplier has a free hand in pricing of the product and since supply can directly be controlled, the supplier can charge whatever rates it might want from the customers. In private sector monopolies profits are the main motive and therefore, the existence of a monopoly would mean profit maximization. While, on the public sector side the government would focus more on other key variables respectively.

• Price Making

As explained above, since there is only one seller in the market place, he has a free hand in deciding the prices of the goods and services depending upon the nature of the producer. In general, therefore it is a believed fact that consumers would have no other choice but to accept the price being offered.

• Lack of Competition

Since there is existence of only one seller of the product as explained above, there is absolutely no competition existing in the industry respectively.

• Barriers to Entry

The last and the most important factor present in monopolies are the barriers to entry which are extremely high and prevent other players from entering the market place respectively.

Three Examples of these are as follows:-

Government Policies:-

Some key sectors such as defense, railways, roadways etc must neccesarily be undertaken by public sector units since they have a big impact on national security and the overall distribution of income. Therefore, some monopolies example the railways and the roadways in most countries are a perfect example of government policies which lead to monopolies coming into existence

Patents:-

Patents protect and create monopolies because of their discovery of a certain technology or technique and incurred heavy research and development in the same. As a result for a certain period of time, such companies are granted the sole right to sell a product or service without competitiors having access to the vital technology required to produce the product. This is another example of a barrier to entry.

Start Up Costs:-

Some key sectors are such, that their overall cost of starting such operations are extremely high such as iron and steel extraction and not all companies have the required capital required to enter the industry thus leading to a natural monopoly for some countries respectively.

What does it mean that monopolies, in general, produce inefficient results for society?

When it comes to society, monopolies that are controlled by the government have turned out to be inefficient and have higher costs compared to privately owned companies or firms. Even when the costs of such products such as the railways may be significantly lower, there is an increasing trend to allow for privatization of such firms and companies since government find it tough to manage.

Further, monopolies in the private sector create a negative environment in which only a few companies benefit causing big problems for the overall society as prices are unjustified respectively.

What are the characteristics of monopolistic competition?

A monopolistic competition has free entry and exit of competitors while it unlike a pure monopoly has a large number of producers which tend to produce the same kind of product or services with certain differences in the goods which are offered for sale respectively.

The key example of a monopolistic competition is a resteraunt based business.

The key characteristics are as follows:-

1) Product Differentiation 2) Free Entry and Exit of Firms 3) Elasticity of Demand when compared to monopolies

What are the characteristics of oligopoly?

An oligopoly comes into existence when two or more companies that form an industry come together and take collective decisions in the quantity and quality of products to be produced and the prices which each one will charge to maintain profit levels for each one.

Thus to achieve the common goal of profits, it sees companies coming together with one another to increase their profits by reducing competition in the industry whereas sharing the overall market share respectively.