s monopoly a good example of competitive free enterprise

In assuming there is one firm in a market, we assume there are no other firms producing goods or services that could be considered part of the same market as that of the monopoly firm. We shall see in the next chapter that monopolies are not the only firms that have this power however, the absence of rivals in monopoly gives it much more price-setting power.Īs was the case when we discussed perfect competition in the previous chapter, the assumptions of the monopoly model are rather strong. A firm that acts as a price setter possesses monopoly power. The entry of new firms, which eliminates profit in the long run in a competitive market, cannot occur in the monopoly model.Ī firm that sets or picks price based on its output decision is called a price setter. It selects from its demand curve the price that corresponds to the quantity the firm has chosen to produce in order to earn the maximum profit possible.

In the case of monopoly, entry by potential rivals is prohibitively difficult.Ī monopoly does not take the market price as given it determines its own price. Not only does a monopoly firm have the market to itself, but it also need not worry about other firms entering. There are no close substitutes for the good or service a monopoly produces. Monopoly is at the opposite end of the spectrum of market models from perfect competition. Define what is meant by a natural monopoly.List and explain the sources of monopoly power and how they can change over time.Define monopoly and the relationship between price setting and monopoly power.

S monopoly a good example of competitive free enterprise