Solution:

What is Monopoly?

• It is a market structure in which there is only a single seller of the product. Here one firm is selling the product and has full control over the supply of the product e.g. the supply of electricity by the Rajasthan State Electricity Board or postage stamps, postcards, envelopes Indian Postal Orders, etc. are supplied by the Postal Dept.

• This is such a situation in the market where there is only one producer of a commodity with no close substitutes. Hence, a monopoly is a market structure in which there is only one producer of a commodity with no close substitute.

Thus, the analysis of monopoly begins with two simple assumptions:

• (i) First, the entire industry is supplied by a single seller who is called a monopolist;

• (ii) Second the monopolist sets a single price and supplies all buyers who wish to buy at that price.

For the smooth functioning of a monopoly market situation, it is necessary to have the following characteristics or features:

1. Sole supplier of the product and a large number of buyers:

• A monopoly is characterized by the sole seller of a product in an industry. The firm represents the industry as a whole which has complete control over the supply of products.

• Thus, there is only one firm under monopoly but the buyers of the products are in large numbers, consequently, no buyer can influence the price of the product.

2. No close substitutes:

• Under Monopoly, there are no close substitutes for the product. Monopoly cannot continue if there is the availability of substitute goods.

3. One firm industry:

• There is only one firm, the distinction between the firm and the the industry is no longer in existence.

4. Monopoly may vary from industry to industry:

• The form and structure of a monopoly may also vary from industry to industry.

5. Absence of Entry:

• Under a monopoly market structure, no other firm can enter the market. It implies the absence of actual entry. The barriers to entry may be artificial, legal, natural, economic and institutional, etc.

6. The monopolist is a Price maker:

• Under Monopoly, the market structure is a price maker, not the price taker because a monopolist has full control over the supply of the commodity.

• The fortunate monopolist can fix whatever price he chooses. But if his sale is not enough, then he may lose instead of gain.