ECO 415

GROUP MEMBER:
Mohamad Yusri Bin Jupri
Muhammad Faridzuan Bin Rosle Shamre

2015429982
2015418592

Amirul Ashraf Bin Ismail

2015664086

1. Explain four (4) characteristics of a monopoly.

First characteristic of monopoly is single seller. There is only one single firm which
makes up the industry and these firm provide total supply of the product. Example Tenaga
Nasional Berhad (TNB), Astro and Jabatan Bekalan Air (JBA).
Second characteristic of monopoly is it has unique product. The product has no close
substitutes and the monopolist faces little or no competition. The cross elasticity of demand
for these product is low or less than 1. Examples of these products are electricity, satellite TV
and water.
Third characteristic of monopoly is it has high barrier to entry. New firms difficult to
enter a monopolistic market or business because of the existence of barrier to entry. There are
a few barrier to entry which are ownership of vital resource, legal barrier, economies of scale
and has large initial capital investment required to setup the business.
Next characteristic of monopoly is the firm are the price makers. Monopolies are price
makers as they face no competition. A price maker refer to a firm, which faces a downwardslopping demand curve. This means that the firm can determine the price of its products. In
order to sell more, they will reduce the price and vice versa.

2. Elaborate any four (4) types of barriers to enter a monopoly market or industry.
Ownership of a vital resource.
In a monopoly industry, there is only one single firm which makes up the industry.
For example, PETRONAS has the exclusive rights on the production of crude petroleum, so

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only this firm can extract this resource in Malaysia and it is very difficult for new firms to
enter petroleum industry in Malaysia.
Legal barriers.
There are legal barriers for a new firm to enter the market such as patents, licenses,
permits and franchise. A license, a permit and the like are needed to venture into this market.
Economies of scale.
Economies of scale that means lower per unit costs, feasible only with large scale
production. This prevents newer and smaller firms from entering the market as they cannot
match the lower average cost incurred by the existing firm. This firm will remain dominant in
the business.
Large initial capital investment required to setup the business.
This is the case of natural monopolies like utility companies such as water, electricity
and the local phone services. The cost or the investment required to set up these companies
are immensely large, therefore only one or two firms can operate these businesses.

3. Differentiate in terms of characteristics between monopoly and monopolistic

competition.
Monopoly has one or sole producer which makes up the industry. The type of product
involve in monopoly is unique product. Examples of products are Local phone services and
electricity. Monopoly experiences high barriers to entry due to large initial capital investment
required to set up the business. In the long run, Monopolies will earn Supernormal Profit.
Monopolistic competition has many small sellers but it is not as many as Perfect
competition firms. The type of product involve is differentiated product which can be done by
using brands, wrappers, packaging and so on. Example of products are Food and clothing. In
Monopolistic competititon, the market is easy to entry and exit so it is quite easy for a new
firm to enter the market. In the long run, Monopolistic competition will only earn Normal
profit.

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