Monopoly Market Structure: Characteristics and Case Study of Australian Post

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
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1ECONOMICS ASSIGNMENT
Introduction
The economic theory defines market as an exchange relation occurs between
interested group of buyers and sellers. Under condition of free market, the invisible hand or
price mechanism ensures optimal distribution of resources. Presence of buyers and sellers in
the marketplace results in varying degree of competition. In some cases, sellers are in a
dominant position while in some others buyers may be in a dominant position. Difference in
level of competition results in separation of market structure into four major categories –
perfectly competitive, monopoly, monopolistic competition and oligopoly (Baumol &
Blinder, 2015). A market is classified as a perfectly competitive market if large number of
sellers and large number of buyers compete in the market. In such a market, neither buyers
nor sellers have any degree of market power. In contrast to perfect competition, monopoly is
a market where single seller dominates the market. The essay aims to discuss monopoly
primary characteristics of monopoly market structure taking Australian post as an example.
Analysis
Basic characteristics of monopoly market
The monopoly market structure refers to a market characterized by operation of single
seller in the market. Followings are the basic characteristics of a monopoly market.
Number of buyers and sellers
The monopoly market is characterized by presence of a single seller and a
considerably large number of buyers.
Type of product
The single seller in the monopoly market produces a unique product that do not have
any close substitute product (Cowell, 2018).

2ECONOMICS ASSIGNMENT
Barriers to entry
There are strict barriers for any new firms to enter the market. The barriers can be
either natural or artificial. The presence of natural barriers in such a market results in natural
monopoly.
Market power
In a monopoly market, single seller dominates the market and serves a large number
of buyers. Given entry is completely barred in the market; the monopolist has a significant
market power (Cowen & Tabarrok, 2015). The monopolist takes the decision related to price
and quantity. The monopolist is the price maker in the market.
Industry
In the monopoly market, as there is a single seller there is no difference between the
firm and the industry.
Short run equilibrium
Like every other firm, the monopolist wishes to maximize profit. The firm needs to
satisfy two necessary condition to attain maximum profit. The first order condition for
maximizing profit is the additional revenue earned from additional sales should be equal to
additional cost incurred by the firm to produce the additional unit (Nicholson & Snyder,
2014). This is to say that curve showing marginal revenue of firms should cut the curve
showing marginal cost. The second order condition for profit maximization is the marginal
cost curve passes through the marginal revenue curve from below. The monopolist usually
sets a price that is well-above the marginal cost and hence, earns above normal profit. The
monopolist might incur a loss in the short run and continue production as long as costs can be
recovered.