Assumptions of Monopoly Market Essay

The monopoly describes an industry by comprising a atomic number 53 sign of the zodiac. In other words, the firm and the industry are unmatchable and the same. In the absence of regulation, monopolists can exercise agree over the prices they pluck for intersections and services. Of course, in reality, it is often difficult to define industries (whether in terms of product produced or area covered), which often causes problems in defining monopolies.The three principal(prenominal) assumptions of monopoly are Single firmIn a monopoly, there is a single firm which produces all the return of the industry. In other words, the firm and the industry are synonymous. Consequently, the demand rationalise the monopolist faces is in occurrence the same as the industry demand curve. Unique product hostile perfect disputation (where all firms produce identical products), the monopolist produces the scarcely product. In other words, there are no close substitutes being produced by other firms. This means that consumers can merely buy output from one firm. For example, traditionally in the UK before the deregulation of the 1980s and 1990s, customers could only buy gas (British Gas), telephony (British Telecommunications) and postal services (Post Office) from a single supplier. Barriers to doorwayOne of the main reasons why monopolies arise and are sustained, is that barriers to competition exist more specifically, barriers to entry and exit. Barriers to entry can be delineate generally as anything that places a potential entrant at a competitive disadvantage relative to firms already effected in the industry. compliance barriers can arise in three ways, namely government regulations ( well-grounded barriers), the proficient conditions prevailing in the industry (structural barriers) and by the actions of established firms (strategic barriers). Legal barriers set out in the form of various acts and regulations. They can arise because of various forms of reg ulation,which claim either industry structure (the number of firms in an industry) or how firms behave.Examples of legal barriers include registration, certification and licensing of businesses, patents, taxes, tariffs and quotas. Structural barriers arise from the inherent structural and technological characteristics of an industry. In other words, the extent of product differentiation, the size distribution of firms, the accessibility to firms of economies of scale and scope all determine the extent and nature of barriers to entry in any given industry. Finally, strategic barriers are erected by established firms to deter the entry of new firms. Such barriers include various forms of set and non-pricing strategies.Overall, in the case of a pure monopoly, the monopolist is effectively insulated from competition, by barriers to entry. Given that the monopolist faces a downward sloping demand curve and produces a unique product or service, it consequently has complete control ove r the prices it charges.Referencehttp//classof1.com/homework-help/economics-homework-help/