Assumptions of Monopoly Market Essay

The monopoly describes an application by comprising a single firm. In other words, the firm and the industry are one and the same. In the absence seizure of regulation, monopolists can exercise control everyplace the prices they charge for products 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 main assumptions of monopoly are Single firmIn a monopoly, there is a single firm which produces all the end product of the industry. In other words, the firm and the industry are synonymous. Consequently, the demand curve the monopolist faces is in fact the same as the industry demand curve. rum productUnlike perfect competition (where all firms produce identical products), the monopolist produces the only product. In other words, there are no compressed substitutes being produced by other firms. This means that consumers can only buy out put 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 entryOne of the main reasons why monopolies arise and are sustained, is that barriers to competition last more specifically, barriers to entry and exit. Barriers to entry can be defined generally as anything that places a potential entrant at a competitive injustice relative to firms already established in the industry. Entry barriers can arise in three ways, namely government regulations (legal barriers), the technical conditions prevailing in the industry (structural barriers) and by the actions of established firms (strategic barriers). Legal barriers come in the form of various acts and regulations. They can arise because of various forms of regulation,which affect either industry structure (the deed of firms in an industr y) 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 technical characteristics of an industry. In other words, the extent of product differentiation, the sizing distribution of firms, the availability 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 pricing 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 over the prices it charges.Referencehttp//classof1.com/homework-help/economics-homewor k-help/