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State three assumptions/characteristics underlying the theory of monopoly - Leaving Cert Economics - Question 5 - 2014
Question 5
State three assumptions/characteristics underlying the theory of monopoly. (i) (ii) (iii)
Worked Solution & Example Answer:State three assumptions/characteristics underlying the theory of monopoly - Leaving Cert Economics - Question 5 - 2014
Step 1
State three assumptions/characteristics underlying the theory of monopoly.
Answer
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Only one firm in the industry: In a monopoly, there is only one firm that constitutes the entire industry. This firm is the sole seller of the product, controlling the market supply.
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Price Maker: The monopolistic firm has the power to control the price of its product. Since it is the only seller, it sets the price above marginal cost, allowing for economic profits.
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Barriers to entry: High barriers exist preventing other firms from entering the market. These can include legal restrictions, control of resources, or significant startup costs, ensuring the monopolist maintains its market dominance.