A significantīarrier to exit is the existence of sunk costs. Some firms may be reluctant to undertake such a commitment. One barrier to exit may be a long-term contract to provide a product. Other barriers to entry include the creation of brand loyalty through branding and advertising and monopoly’s access to resources and retail outlets.īarriers to exit can also stop new firms from entering the market. Therefore, option b is the correct answer since it is not applicable to a monopoly.It can also be expensive to set up a new industry, if large capital equipment is required. Finally, in a monopoly, the seller can use his monopolistic powers to realize maximum revenue, Hence, he is not a price-taker. Hence, option d is also applicable to a monopoly market. Further, a monopolist will try to get more buyers by advertising his goods. Therefore, options a and c are characteristics of a monopoly. Q: All of the following are characteristics of a monopoly except:Īnswer: According to the features of a monopoly market, there is a single seller with no close substitutes for the commodity in the market. The consumers have to accept the price set by the firm as there are no other sellers or close substitutes. Since there is only one firm selling the product, it becomes the price maker for the whole industry. For example, in public utilities, like transport, water, electricity, etc., monopolistic markets usually exist to reap the benefits of large-scale production. However, one firm can dominate the supply of a good or a group of goods.
It is important to note that in real life, complete monopoly is extremely rare. However, certain essential characteristics in a commodity or a group of commodities can lead to gaps in this chain of substitution.Ī monopolist or a single seller is one who identifies these gaps, excludes the competition, and controls the supply of a particular commodity. Such a monopolist can use his single-selling power in any manner to realize maximum revenue. Now, to a certain extent, all goods are substitutes for one another. Hence, in the monopoly market, the monopolist faces a downward sloping demand curve. Also, the price elasticity of demand for the monopolist’s product is less than one. Therefore, the cross elasticity of demand for such a product is either zero or very small. Usually, a monopolist sells a product which does not have any close substitutes.
These restrictions can be of any form like economical, legal, institutional, artificial, etc.
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