Monopoly

Monopoly is a market structure where a single seller or producer dominates the entire supply of a product or service. In this form of market, there is no close competition, and the monopolist has significant control over the price and quantity of goods produced. Since no other firm is producing the same product, consumers have limited or no alternatives. This allows the monopolist to set prices according to its own profit-maximizing objectives. Monopolies can be natural, legal, or created through business strategies, and they are common in industries where large investments and infrastructure are required, such as utilities, railways, and certain technology sectors.
Features of Monopoly
1. Single Seller – Only one firm controls the supply of a product or service, making it the sole source for consumers.
2. No Close Substitutes – The product or service offered has no close alternative, forcing consumers to buy from the monopolist.
3. Price Maker – The monopolist decides the selling price, as competition is absent.
4. High Barriers to Entry – New firms find it difficult to enter due to high investment requirements, patents, legal restrictions, or strong brand loyalty.
5. Control over Supply – The monopolist can control production levels, influencing both availability and market price.
6. Unique Product – The goods or services are often distinctive due to technology, patents, or resource ownership.
Causes of Monopoly
Monopolies can form due to various reasons. Natural monopolies occur when economies of scale make it most efficient for a single firm to supply the market, such as electricity or water distribution. Legal monopolies are created through government laws, patents, or copyrights, granting exclusive rights to one company. Technological monopolies arise when a firm owns advanced technology that competitors cannot replicate. Strategic monopolies are built when companies merge, acquire competitors, or engage in aggressive pricing strategies to eliminate rivals.
Advantages of Monopoly
1. Economies of Scale – Large-scale production often reduces average costs, benefiting consumers with lower prices in some cases.
2. Innovation and Research – With higher profits, monopolists may invest in research and development to improve products and processes.
3. Stable Prices – Prices remain relatively stable because there is no constant competition leading to price wars.
4. Efficient Resource Utilization in Certain Cases – In natural monopolies, a single supplier can prevent duplication of infrastructure, reducing waste.
Disadvantages of Monopoly
1. Higher Prices – Lack of competition may lead to inflated prices, burdening consumers.
2. Limited Consumer Choice – Since no substitutes are available, consumers have fewer options.
3. Lower Product Quality – Without competitive pressure, monopolists may neglect quality improvements.
4. Inefficient Allocation of Resources – Monopolists may produce less than the socially optimal level, leading to deadweight loss.
5. Exploitation of Consumers – The monopolist can manipulate prices and output to maximize profits at the expense of consumers.
Price and Output Determination in Monopoly
In a monopoly, price is determined by the monopolist’s demand curve, which slopes downward, meaning higher prices reduce quantity demanded. The monopolist aims to maximize profits where Marginal Cost (MC) equals Marginal Revenue (MR), and then charges the highest price consumers are willing to pay at that output level. Unlike perfect competition, price is always higher, and output is lower in monopoly markets.
Government Regulation of Monopolies
Governments often intervene to regulate monopolies and protect consumer interests. This can be done by:
• Price Regulation – Setting maximum prices to prevent overcharging.
• Quality Control – Ensuring goods meet minimum quality standards.
• Breaking Monopolies – Using antitrust laws to split companies into smaller units to encourage competition.
• Encouraging Market Entry – Supporting new businesses through subsidies, tax breaks, or reducing regulatory barriers.
Real-World Examples of Monopolies
• Indian Railways – A government-owned monopoly providing railway transportation in India.
• Microsoft (1990s) – Held a monopoly in PC operating systems with Windows.
• De Beers – Controlled a major share of the global diamond market for decades.
• Google Search – Though not a legal monopoly, it dominates the search engine market with over 90% share globally.
Conclusion
Monopoly is a powerful market structure that can shape economies and consumer choices. While it can bring benefits such as economies of scale and innovation, it can also lead to high prices, poor quality, and consumer exploitation if left unchecked. Therefore, proper regulation is necessary to balance the monopolist’s profit motives with consumer welfare. In the modern economy, technological advancements and globalization have reduced some monopolistic powers, but in certain industries, monopolies still exist and will continue to influence markets. Understanding monopoly is essential for policymakers, businesses, and consumers alike to ensure fair, efficient, and sustainable market practices.

Monopoly – 100 Multiple Choice Questions
1. A monopoly market structure is defined as:
a) Many buyers and sellers
b) Only one seller of a product
c) Many sellers of identical products
d) Several firms producing differentiated goods
Answer: b
2. In a monopoly, the firm is:
a) Price taker
b) Price maker
c) Price follower
d) Price matcher
Answer: b
3. A monopoly faces which type of demand curve?
a) Perfectly elastic
b) Perfectly inelastic
c) Downward sloping
d) Horizontal
Answer: c
4. Which of the following is a barrier to entry in a monopoly?
a) Low fixed costs
b) Patents
c) Large number of sellers
d) Free entry
Answer: b
5. Natural monopoly occurs when:
a) Government owns the firm
b) One firm can supply the entire market at lower cost
c) Products are differentiated
d) Firms compete fiercely
Answer: b
6. A monopolist maximizes profit where:
a) MC = MR
b) MC = AR
c) MR = AR
d) AC = AR
Answer: a
7. In a monopoly, price is:
a) Equal to marginal cost
b) Greater than marginal cost
c) Less than marginal cost
d) Always zero
Answer: b
8. Which is a feature of monopoly?
a) Homogeneous product
b) Many competitors
c) Single seller
d) Perfect information
Answer: c
9. Which is an example of a monopoly created by law?
a) A local bakery
b) Microsoft in early Windows market
c) De Beers controlling diamonds
d) A drug company with patent rights
Answer: d
10. Price discrimination is possible in monopoly when:
a) Same price for all buyers
b) Different prices for different buyers
c) No market segmentation
d) No barriers to entry
Answer: b
11. Which type of price discrimination charges each customer their maximum willingness to pay?
a) First-degree
b) Second-degree
c) Third-degree
d) Fourth-degree
Answer: a
12. Public utilities often operate as:
a) Monopolies
b) Perfect competition
c) Oligopolies
d) Monopolistic competition
Answer: a
13. Consumer surplus in monopoly is:
a) Higher than perfect competition
b) Lower than perfect competition
c) Equal to perfect competition
d) Negative
Answer: b
14. Deadweight loss in monopoly means:
a) Loss of producer surplus only
b) Loss of consumer surplus only
c) Loss of total welfare compared to perfect competition
d) Extra profit for the firm
Answer: c
15. The demand curve faced by a monopolist is the same as:
a) Market demand curve
b) Marginal cost curve
c) Supply curve
d) Average cost curve
Answer: a
16. A monopolist’s marginal revenue is:
a) Always greater than price
b) Always less than price
c) Equal to price
d) Negative always
Answer: b
17. Which factor does NOT create a monopoly?
a) Economies of scale
b) Patents
c) Government licensing
d) Perfectly elastic demand
Answer: d
18. Monopoly output compared to perfect competition is generally:
a) Higher
b) Lower
c) Same
d) Infinite
Answer: b
19. Price elasticity of demand for a monopolist is:
a) Always greater than 1
b) Always less than 1
c) Can be greater or less than 1 depending on output
d) Always infinite
Answer: c
20. If marginal cost is constant and positive, a monopolist will:
a) Charge MC as price
b) Set price where MR = MC
c) Set price equal to AR
d) Charge zero price
Answer: b
21. The Lerner Index measures:
a) Price elasticity of supply
b) Degree of monopoly power
c) Consumer surplus
d) Total cost
Answer: b
22. Monopoly results in:
a) Allocative efficiency
b) Productive efficiency
c) Both efficiencies
d) Neither efficiency
Answer: d
23. Which is a disadvantage of monopoly?
a) Lower prices
b) Lower output
c) Higher competition
d) More innovation always
Answer: b
24. Patents encourage:
a) No research
b) Innovation
c) Less output
d) Price controls
Answer: b
25. Which is an example of a government-created monopoly?
a) Apple
b) Local electricity board
c) Grocery store
d) Street food vendor
Answer: b
26. Price discrimination benefits monopolist by:
a) Increasing total profit
b) Reducing output
c) Lowering costs
d) Increasing competition
Answer: a
27. Monopoly power is greater when:
a) Elasticity of demand is high
b) Elasticity of demand is low
c) Elasticity is infinite
d) Elasticity is negative
Answer: b
28. In a natural monopoly, average cost:
a) Increases as output increases
b) Decreases over the relevant range of output
c) Is constant
d) Is unrelated to output
Answer: b
29. Perfect competition compared to monopoly has:
a) Lower prices and higher output
b) Higher prices and lower output
c) Equal prices
d) Zero output
Answer: a
30. Which curve lies below the average revenue curve for a monopolist?
a) MC
b) MR
c) AC
d) Supply
Answer: b
31. The social cost of monopoly is represented by:
a) Marginal cost
b) Deadweight loss triangle
c) Total revenue
d) Marginal revenue
Answer: b
32. Which policy can regulate monopoly?
a) Price caps
b) Subsidies
c) Quantity restrictions
d) All of the above
Answer: d
33. First-degree price discrimination:
a) Extracts all consumer surplus
b) Increases deadweight loss
c) Creates excess capacity
d) Increases competition
Answer: a
34. If MR is positive, demand is:
a) Elastic
b) Inelastic
c) Perfectly inelastic
d) Unit elastic
Answer: a
35. Monopoly is most likely in markets with:
a) Low fixed costs
b) High fixed costs
c) Many substitutes
d) No entry barriers
Answer: b
36. Monopoly leads to:
a) Lower producer surplus
b) Higher producer surplus
c) Equal producer surplus
d) Negative producer surplus
Answer: b
37. Which is NOT a form of price discrimination?
a) Charging higher price during peak hours
b) Charging per unit discount for bulk buying
c) Charging same price to all buyers
d) Charging different prices in different regions
Answer: c
38. Patents usually last for:
a) 1–5 years
b) 10–20 years
c) Forever
d) 50 years
Answer: b
39. Public ownership of monopoly aims to:
a) Maximize profit
b) Increase prices
c) Serve public interest
d) Reduce output
Answer: c
40. In monopoly, supply curve:
a) Exists
b) Does not exist
c) Is horizontal
d) Is vertical
Answer: b
41. When MR is zero, the price elasticity of demand is:
a) Elastic
b) Inelastic
c) Unit elastic
d) Perfectly elastic
Answer: c
42. Which curve is always above the MR curve in monopoly?
a) Average cost
b) Average revenue
c) Marginal cost
d) Supply curve
Answer: b
43. In monopoly, marginal revenue becomes negative when:
a) Demand is elastic
b) Demand is inelastic
c) Price is zero
d) Costs are constant
Answer: b
44. Price discrimination requires:
a) Identical buyers
b) Different elasticities of demand in sub-markets
c) Same elasticity in all markets
d) Government prohibition
Answer: b
45. Monopoly equilibrium occurs where:
a) MC = MR and MC is rising
b) MC = AC and MC is falling
c) AC = AR
d) MR = AR
Answer: a
46. In monopoly, price is determined from:
a) Demand curve
b) Supply curve
c) Marginal cost curve only
d) Average cost curve only
Answer: a
47. Which of the following is NOT a monopoly characteristic?
a) Single seller
b) No close substitutes
c) Free entry and exit
d) Price maker
Answer: c
48. Which type of monopoly is based on location advantage?
a) Legal monopoly
b) Geographical monopoly
c) Technological monopoly
d) Natural monopoly
Answer: b
49. The monopolist’s profit in the long run is:
a) Zero
b) Positive
c) Negative
d) Always maximum possible
Answer: b
50. Government can break up monopolies through:
a) Antitrust laws
b) Increasing fixed costs
c) Price fixing
d) Tax exemptions
Answer: a
51. If AR > AC at equilibrium, the monopolist earns:
a) Normal profit
b) Loss
c) Supernormal profit
d) Zero revenue
Answer: c
52. Which is an example of a monopoly in India?
a) Indian Railways
b) Reliance Jio
c) Tata Steel
d) Infosys
Answer: a
53. Which of the following creates a monopoly through innovation?
a) Economies of scale
b) Patents on new inventions
c) Price wars
d) Government subsidies
Answer: b
54. A monopoly maximizes profit by choosing:
a) Price first
b) Output first
c) Cost first
d) Elasticity first
Answer: b
55. Which of these is a monopoly market with zero competition?
a) Perfect competition
b) Duopoly
c) Oligopoly
d) Pure monopoly
Answer: d
56. Which diagram area represents deadweight loss in monopoly?
a) Rectangle above MC curve
b) Triangle between demand and MC
c) Rectangle below MR curve
d) Area under AC curve
Answer: b
57. Which factor increases monopoly power?
a) More substitutes
b) Fewer substitutes
c) Lower barriers to entry
d) Many sellers
Answer: b
58. Which of the following is an artificial barrier to entry?
a) Patent
b) Economies of scale
c) High startup costs
d) Control over natural resources
Answer: a
59. A monopolist can increase total revenue only if demand is:
a) Elastic
b) Inelastic
c) Unit elastic
d) Perfectly inelastic
Answer: a
60. When a monopolist increases price in the inelastic range of demand:
a) Total revenue falls
b) Total revenue rises
c) Total revenue is unchanged
d) Demand becomes elastic
Answer: b
61. Price discrimination is easier when resale of goods is:
a) Possible
b) Impossible
c) Encouraged
d) Subsidized
Answer: b
62. Which statement is TRUE for monopoly pricing?
a) Price equals MC
b) Price exceeds MC
c) Price is always less than MC
d) Price equals zero
Answer: b
63. Which market structure has the least consumer surplus?
a) Monopoly
b) Perfect competition
c) Oligopoly
d) Monopolistic competition
Answer: a
64. Monopoly price is:
a) Lower than competitive price
b) Higher than competitive price
c) Equal to competitive price
d) Cannot be compared
Answer: b
65. In monopoly, higher price and lower output result in:
a) Higher welfare
b) Deadweight loss
c) Zero profit
d) Perfect efficiency
Answer: b
66. In first-degree price discrimination, the monopolist:
a) Charges same price to all
b) Charges maximum price each can pay
c) Charges lower prices to all
d) Ignores demand elasticity
Answer: b
67. Which is NOT a type of monopoly?
a) Legal monopoly
b) Technological monopoly
c) Geographical monopoly
d) Perfect competition monopoly
Answer: d
68. Which point shows maximum profit in monopoly diagram?
a) MR = MC
b) AR = AC
c) AC = MC
d) AR = MR
Answer: a
69. Price elasticity of demand at profit-maximizing output is:
a) Less than 1
b) Equal to 1
c) Greater than 1
d) Cannot be determined
Answer: c
70. In monopoly, the firm’s demand curve is:
a) Industry demand curve
b) Firm supply curve
c) MR curve
d) MC curve
Answer: a
71. Which government policy lowers monopoly power?
a) Deregulation
b) Trade liberalization
c) Higher tariffs
d) Stronger patents
Answer: b
72. The term “X-inefficiency” in monopoly means:
a) Producing at lowest possible cost
b) Producing above minimum cost
c) Perfect efficiency
d) Zero profit
Answer: b
73. A monopolist’s total revenue curve is:
a) Straight upward sloping
b) Inverted U-shaped
c) Horizontal
d) L-shaped
Answer: b
74. Monopoly pricing leads to:
a) Output expansion
b) Output restriction
c) Constant output
d) Perfect competition output
Answer: b
75. If MR < 0, increasing output will: a) Increase total revenue b) Reduce total revenue c) Keep total revenue constant d) Increase elasticity Answer: b 76. A monopoly firm produces: a) Where MR = MC b) Where MC > MR
c) Where MC < MR d) Anywhere on AC curve Answer: a 77. In monopoly, average revenue is equal to: a) Price b) MC c) MR d) AC Answer: a 78. Monopoly pricing compared to perfect competition usually results in: a) Higher price, lower output b) Lower price, higher output c) Same price, same output d) Higher price, higher output Answer: a 79. In third-degree price discrimination, prices are higher in the market with: a) Higher elasticity b) Lower elasticity c) Equal elasticity d) Perfect elasticity Answer: b 80. Which of the following is NOT a real-world example of monopoly? a) Google Search dominance b) Indian Railways c) Local electricity board d) Multiple street vendors selling tea Answer: d 81. Which is a natural monopoly example? a) Railway network b) Bakery c) Clothing brand d) Restaurant Answer: a 82. Monopoly causes allocative inefficiency because: a) Price = MC b) Price > MC
c) Price < MC d) Price = AC Answer: b 83. Monopoly profits in the long run persist due to: a) Low barriers to entry b) High barriers to entry c) No barriers to entry d) Many substitutes Answer: b 84. Monopoly regulation through price cap aims to: a) Increase monopoly profit b) Protect consumers c) Reduce output d) Ban competition Answer: b 85. Which of these is an advantage of monopoly? a) Higher prices b) Economies of scale c) Deadweight loss d) Consumer exploitation Answer: b 86. Monopoly reduces: a) Producer surplus b) Consumer surplus c) Both surpluses equally d) Marginal cost Answer: b 87. Monopoly output is determined by: a) Supply curve b) MC = MR condition c) AR curve only d) Government regulation Answer: b 88. The slope of a monopolist’s demand curve is: a) Positive b) Negative c) Zero d) Infinite Answer: b 89. Monopoly leads to: a) More competition b) No competition c) Less concentration d) Lower market share Answer: b 90. In monopoly equilibrium, AC can be: a) Below AR (profit) b) Equal to AR (normal profit) c) Above AR (loss) d) All of the above Answer: d 91. A monopolist will never operate where demand is: a) Elastic b) Unit elastic c) Inelastic d) All ranges Answer: c 92. If fixed costs increase, monopoly price in short run: a) Increases b) Decreases c) Remains unchanged d) Falls sharply Answer: c 93. Monopoly pricing ignores: a) Demand b) Cost c) Competition d) Profit Answer: c 94. In monopoly, MR lies: a) Above AR b) Below AR c) Equal to AR d) Equal to MC Answer: b 95. Monopoly equilibrium output is: a) Higher than competitive output b) Lower than competitive output c) Equal to competitive output d) Random Answer: b 96. In monopoly, marginal cost pricing: a) Is always followed b) Is rare without regulation c) Reduces output d) Increases deadweight loss Answer: b 97. Monopoly market power comes from: a) Perfect substitutes b) Lack of substitutes c) Free entry d) Price taking behavior Answer: b 98. Which is a technological monopoly? a) Patent on a new software b) Control over water supply c) Location-based advantage d) Government license Answer: a 99. Monopoly profits are sometimes called: a) Normal profits b) Economic rents c) Marginal revenue d) Average returns Answer: b 100. In monopoly, total profit is: a) (Price – AC) × Quantity b) Price × Quantity c) AC × Quantity d) MC × Quantity Answer: a Full Answer Key (Q1–Q100) 1-b 2-b 3-c 4-b 5-b 6-a 7-b 8-c 9-d 10-b 11-a 12-a 13-b 14-c 15-a 16-b 17-d 18-b 19-c 20-b 21-b 22-d 23-b 24-b 25-b 26-a 27-b 28-b 29-a 30-b 31-b 32-d 33-a 34-a 35-b 36-b 37-c 38-b 39-c 40-b 41-c 42-b 43-b 44-b 45-a 46-a 47-c 48-b 49-b 50-a 51-c 52-a 53-b 54-b 55-d 56-b 57-b 58-a 59-a 60-b 61-b 62-b 63-a 64-b 65-b 66-b 67-d 68-a 69-c 70-a 71-b 72-b 73-b 74-b 75-b 76-a 77-a 78-a 79-b 80-d 81-a 82-b 83-b 84-b 85-b 86-b 87-b 88-b 89-b 90-d 91-c 92-c 93-c 94-b 95-b 96-b 97-b 98-a 99-b 100-a