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Monopoly – a market with a single firm that produces a good or service with no closesubstitutes and that is protected by a barrier that prevents other firms from entering that
market.
No close substitute – tap water and bottle water.
Barriers to entry- a constraint that protects an firm from potential competitors.
Natural barrier to entry – creates natural monopoly
Natural monopoly- a market in which economies of scale enable one firm to supply the entire
market at the lowest possible cost. E.G firms delivering water and electricity.
Ownership barrier to entry- occurs if one firm owns a significant portion of a key resource. E.G
De Beer Diamonds
Legal barrier to entry – creates a legal monopoly
Legal monopoly- a market which competition and entry are restricted by the granting of public
franchise, government license , patent or copyright
Public franchise – an exclusive right granted to a firm to supply a good or service.( south African
post office)
Government license – controls entry into particular occupations, professions and industries.
( Doctors)
Patent – exclusive right granted to the inventor of a product or service ( 20 years)
Copyright- an exclusive right granted to the author or composer of a literary , musical , dramatic
or artistic work.
MONOPOLY PRICE SETTING STRATEGIES
To sell a larger quantity , the monopoly must set a lower price.
Single – price monopoly – A firm that must sell each unit of its output for the same price to all of
its customers
Price discrimination-Sells different units of a good /service for different prices.( Firms are
charging the highest possible price for each unit sold and making the largest possible profit)
A SINGLE-PRICE MONOPOLY’S OUTPUT AND PRICE DECISION-PRICE AND
MARGINAL REVENUE
Demand curve = Market demand curve
Marginal revenue – If price decreases, Quantity demanded increases, TR increases then
decreases
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