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SS2: ECONOMICS - 2ND TERM

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Definition of Monopoly

Monopoly is a market situation where the entire supply of commodity rests on a single firm. Monopoly is a market situation when there is only one supplier of a good that has no close substitute. The monopolist has the power to determine, influence either the price at which he sells his commodity or the quantity he will place on the market but not both.

Features of Monopoly

1. One seller of a product and many buyers e.g. Power Holding Nigeria Company (PHCN).

2. No freedom of entry and exist

3. He can control either the price or quantity

4. He produces only one product that has no close substitutes i.e. no perfect substitute for the product.

5. There is transport cost

6. He can make abnormal profit both in the short run and long run

7. He faces a down ward slopping demand curve

Causes of Monopoly

1. Patent Right: The right for a product or production process. A patent right is an act securing to a person or a firm the exclusive right of the invention. This helps to protect his invention from being imitated. 

2. Natural Monopoly: This occurs when particular natural resources can be found in a particular place or country only. This now makes them have control over such resources and commodities produced by them. E.g. communication, electricity, or Nigeria as a sole producer of crude oil in West Africa.

3. Deliberate Act of Government: This occurs when the government grants a firm the exclusive or sole right to a trade e.g. public corporation.

4. Huge Cost of Production: Some firms require a very huge amount of money to be established, this normally prevents most producers from producing such product and thereby grants few firms that can afford it a monopolist right.

5. Legal Monopoly: The law may grant some people sole right to produce certain commodities and also protect their works e.g. copyright.

A copy right is a legal exclusive right to print or produce a book, an article etc so as to encourage invention and development of new ideas.

6. Deliberate pricing: Deliberate pricing policy by the government in other to prevent competition:

Advantages of Monopoly

1. Encourage Individual Initiatives.

2. Encourage Research and Invention: As a result of large scale investment monopoly markets have enough funds to embark on research and new innovations.

3. Efficiency and full employment of resources: Opportunity for effective utilization of available resources.

4. Monopoly enjoys economics of scale.

5. Prevention of overproduction: the existence of monopoly helps to prevent overproduction because the monopolist can estimate the demand for his product and thereby producing the actual quantity needed by the company.

Disadvantages of Monopoly

1. Monopoly gives room for consumer exploitation

2. Restriction of consumer’s choice

3. Monopoly may promote poor level of services

4. Restriction of progress and economic development

5. Lack of enterprise

6. Lack of adequate competition

Control of Monopoly

Monopoly can be controlled through the following ways.

1. Government putting in measures to stop patent-laws in granting patent right.

2. Government setting up a firm to produce similar products in order to encourage more production.

3. Passing the company’s act or laws requiring firms to publish a profit statement which can attract other firms to enter the industry if high profit is being made.

4. Let the Consumers be aware that they are being exploited and that there are other alternatives elsewhere.

5. By taxing the profit of the firm at a specified profit making level.

6. Forcing monopolist to increase output by imposing on them a tax that is inversely proportional to output.

7. By privatization i.e. selling shares of the firm to the general public.

8 Give more licenses to local made goods.

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