Monopoly

Monopoly sits at the opposite end of the competitive spectrum from perfect competition. A market is a monopoly when a single firm is the sole producer or seller of a product that has no close substitute, so that the firm and the industry are effectively the same thing. Because there is only one seller, and because a would-be rival is prevented — by one barrier or another — from entering and competing it away, the monopolist itself becomes the entire market supply, and it is the monopolist, not an impersonal market force, that effectively decides the price.

A monopoly's market power survives only because of a barrier to entry, and it is worth naming the common kinds a Gujarat Std 11 Commerce Economics student should be able to identify: a legal barrier, where the law itself grants exclusive rights — a patent protecting an invention for a fixed period, a copyright, or a licence or franchise granted only to one operator (a public utility such as electricity distribution in an area is a frequent real-world example); a natural barrier, where controlling the entire known supply of a critical raw material or resource makes entry by anyone else physically impossible; and an economies-of-scale barrier, where the existing firm's costs per unit fall so much at large output that a new, smaller entrant simply cannot produce competitively, effectively locking out competition even without any legal restriction. Whatever the source, the barrier is what converts "there happens to be only one seller today" into "no one else can profitably become a second seller," which is the real economic content of monopoly.

Because the monopolist is the entire market, the demand curve it faces is not the horizontal line a perfectly competitive firm sees but the market's own downward-sloping demand curve — to sell a larger quantity, the monopolist must lower the price, and it must lower that price on every unit sold, not merely on the extra unit. This has a critical consequence for revenue:

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