What is a monopoly?
A) A situation where the government sets all prices.
B) A market where many firms sell identical products.
C) A market where firms have no control over output decisions.
D) A market structure where a single firm controls the entire supply of a good or service.
Answer (2)
A monopoly is a market structure where a single firm controls the entire supply of a good or service, allowing it to set prices and restrict competition. This situation often arises due to barriers to entry, leading to fewer choices for consumers and potential inefficiencies. The correct answer to the multiple choice question is D) A market structure where a single firm controls the entire supply of a good or service.
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The correct answer to the question is option D) A market structure where a single firm controls the entire supply of a good or service.
A monopoly is a market structure characterized by a single firm that is the exclusive provider of a particular product or service. This firm becomes the sole controller of the supply and pricing of the product, often leading to little to no competition within that market.
Here's a step-by-step explanation:
Single Supplier : In a monopoly, there is only one supplier of a particular good or service, which means that this firm has significant control over the market.
Market Power : Because the monopolist is the only provider, they have substantial market power, meaning they can influence prices and output levels.
Barriers to Entry : Monopolies often have high barriers to entry, preventing other firms from entering the market. These barriers can be in the form of patents, resource ownership, government regulations, or high startup costs.
Price Maker : Unlike firms in a competitive market, a monopolist is a price maker. It can set the price higher than in competitive markets because it faces no competition.
Example : Historical examples of monopolies include utility companies, like water and electricity providers, which are often regulated by the government to prevent price gouging.
Understanding monopolies is essential in economics as they can lead to issues like reduced consumer choices and higher prices, which is why many governments have laws in place to control or prevent the formation of monopolies to protect consumers.
