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Answer in detail
What is monopoly? Explain in detail the features of monopoly?
Solution
A monopoly is defined as a market structure in which there is only one seller or firm. This single firm caters to the needs of a large number of buyers. Because it is the only firm in the market, it is regarded as the industry.
The following are the basic features of the monopoly market structure:
i. Single seller/firm/industry - In a monopoly, there exists only one seller or a group of individuals owning a single firm.
ii. Price maker - Since a monopolistic firm is the only firm in the market, it has total freedom to fix the price level that can maximise its profit. Therefore, it can be said that a monopolistic firm is a price maker.
iii. Perfect knowledge - It is assumed that a monopolist has perfect knowledge about the different conditions prevailing in the market. He is well informed about the types of demand prevailing in different markets segments and determines the price of his product accordingly.
iv. Price discrimination - A monopolist enjoys the freedom to engage in price discrimination. In other words, it can sell the same product to different buyers at different prices at different time periods.
v. Complete control over market supply - Being a single seller, a monopolist has sole control over the production. The supply of output rests on the monopolist’s decision.
vi. Possibility of super normal profits- A monopolist firm has complete control over his decisions regarding price and output. The decision is taken taking into consideration the profit motive. At times higher price is charged and at times supply is restricted to earn greater profits.
viii. Firm is the industry- As the monopoly firm is the single firm in the market there is no distinction between the firm and the industry.
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PASSAGE
In India, markets for automobiles, cement, steel, aluminium, etc, are the examples of oligopolistic market. In all these markets, there are few firms for each particular product. Duopoly is a special case of oligopoly, in which there are exactly two sellers. Under duopoly, it is assumed that the product sold by the two firms is homogeneous and there is no substitute for it. Examples where two companies control a large proportion of a market are: (i) Pepsi and Coca-Cola in the soft drink market; (ii) Airbus and Boeing in the commercial large jet aircraft market.
Operating systems for smart phones and computers provide excellent examples of oligopolies in big tech. Apple iOS and Google Android dominate smart phone operating systems. Computer operating systems are overshadowed by Apple and Microsoft Windows.
- Give examples of oligopolistic market in India (1 mark)
- Explain the concept of duopoly with a suitable example from the passage (1 mark)
- Express your personal opinion based on the above information (2 marks)
