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Economic Theory

3. Free entry and exit of the firms. Every firm is free to join or leave
the industry. If the industry is making profits new firms can enter the
market to share these profits. Similarly, if the industry suffers losses the
individual firms can quit the market.

4. No government regulation. There is no government interference in
the market in the form of taxes, subsidies, rationing of essential goods etc.

5. Uniform price. At a particular time uniform price of a commodity
prevails all over the market.
The above five conditions are related to pure competition. Perfect
competition requires the following additional assumptions/conditions to be

fulfilled.
6. Perfect knowledge of market conditions. Buyers and sellers have
full knowledge of the price at which transactions take place in the market.

7. Perfect mobility of the factors. Factors of production can freely
move from one firm to another in the industry. They can also move from
one job to another and in this way there is a scope for learning newer
skills.

8. Absence of selling and transportation costs. Selling and other
promotional costs are not present in perfect market.
Monopoly. The word ‘Monopoly’ has been derived from the two

Greek words, ‘Monos’ which means single, and ‘polus’ which means a
seller, Monopoly is a market situation where there is single seller of a
product and he has full control over the supply of that commodity. He
produces such a product which has no close substitutes.

Thus monopoly market has the following features:
1. There is a single seller of the product.

2. There are no close substitutes of the commodity produced by
monopoly seller.
3. There is restriction on entry or exit of other firms.
4. There is no distinction between a firm and an industry under

monopoly.
5. Seller is a price maker.
6. A monopoly firm earns abnormal profits both in short and long run.

7. Selling costs are negligible.
8. A monopolist is capable of following price discrimination, which
means it can charge different prices for its products from different buyers.
Let us now see what the causes of monopoly are:

1. Monopoly can be the result of exclusive ownership of important
raw materials or knowledge of production techniques.

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