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     A monopoly is a market dominated by a single seller. Instead of many buyers and sellers, as is the case with perfect competition, a monopoly has one seller and any number of buyers. Barriers to entry make monopolies possible. Monopolies can take advantage of their monopoly power and charge high prices. For this reason, the United States has outlawed monopolistic practices in most industries.

     The government allows monopolies in certain industries. A natural monopoly is a market that runs most efficiently when one large firm provides all the output. In the local telephone industry, a monopoly developed because it was inefficient for more than one company to build an expensive wire network. In such cases, the government may give one company the right to dominate a geographic area. In return, that company will agree to let the government control its prices.

     The government can also grant monopoly power by issuing patents or licenses. A patent gives a company exclusive rights to sell a new good or service for a specific time period. A license is a governmentissued right to operate a business. Radio licenses give a station the right to broadcast at a certain frequency.

     Unlike firms in perfectly competitive markets, monopolists have control over prices. However, the law of demand means that when the monopolist raises the price, it will sell fewer goods. So the monopolist sets a price that maximizes its profit. This usually means fewer goods, at a higher price, than would be sold in a more competitive market.

 

 

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