Theory question 108
Market Structures(a) Define market in economics.
(b) State any three features of a monopoly.
(c) Outline any three sources of monopoly power.
Show the model answer
Model answer
(a) A market is any arrangement through which buyers and sellers of a commodity are in contact to exchange it at a price.
(b) Any three: a single seller; no close substitutes; barriers to entry; the firm is a price maker; the firm is the industry; can practise price discrimination; can earn abnormal profit in the long run.
(c) Any three: patents and copyrights; government licence/legislation (statutory monopoly); control of a scarce raw material; large economies of scale (natural monopoly); huge capital requirement; mergers and cartels; exclusive franchise.
Explanation
Sources of monopoly power are the barriers that keep rivals out.