BASIC MICROECONOMICS

Question:

1. Producers would prefer a market characterized by monopoly. Explain the theoretical and
practical reasons for this decision.

Monopoly is market structure in which there is only one producer or seller for a product or their
respective output. The single business is the industry. The producers would prefer a market
characterized by monopoly because it maximizes profits or profits are greater compared to those
other, and other sellers are unable to enter the market of the monopoly, and the producers or sellers
may decide the price of the good or product to be sold. These entries into such a market is restricted
due to high costs or other impediments, which may be economic, social or political. For example, the
utilities firms such as the electricity and water. Due to prohibitive costs of maintenance, others would
not dare to compete and there is a high barrier to entry and exit. Also, a monopoly may also form
when a company has a copyright or patent that prevents others from entering the market like the
Samelco II, monopolizing the distribution of electricity in Catbalogan City, Samar.

Maximize profits and

they are unable to
enter the market of
the monopoly

Just one No
MONOPOLY
supplier competition

Monopolist can
change the price
and quality of the
product