We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is the Role of Monopoly in Microeconomics?

Esther Ejim
By
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Microeconomics is a branch of economics that studies the way individual businesses conduct their affairs in relation to the management and allocation of finance. Monopoly refers to a situation in which one business has cornered a market to the exclusion of other businesses. The role of monopoly in microeconomics is the fact that monopoly affects the manner in which individual businesses can effectively conduct their business and financial affairs.

One of the roles of monopoly in microeconomics is the effect it has on the pricing of goods and services. Companies that have a monopoly over a particular market can set the prices for the goods and services in that market. For instance, in some countries where some government-backed companies have the monopoly over certain utilities and services like gas and electricity, such companies are able to fix prices for the use and consumption of these services. In a market without a monopoly, competition will lead to more variety and will serve as an effective tool for the regulation of prices.

Another role of monopoly in microeconomics is the fact that a monopoly serves as a barrier to the entrant of new businesses into a market sector. This is due to the fact that the monopolists have a goal of protecting their interests in the market. The interests under consideration vary, and they include a desire to preserve the power the monopolist wields in the market or a desire to maintain current high levels of profits. Such high profits will inevitably drop if competition is introduced into the market.

These barriers may be structural, meaning that they are the consequence of a wide gap in the cost of production. The barriers may be strategic, or they may be statutory. Statutory barriers that create a monopoly are those that have been created due to the effect of the law. The effect of monopoly in microeconomics is increased by the microeconomic concept of sunk costs.

Sunk costs occur when a new firm decides to remain in an established market rather than take advantage of a new one. The reluctance to venture into a new and potentially lucrative market is due to the cost of leaving the old one. For instance, a company that sees a reduced profit in its current market may be reluctant to exploit the advantages offered in the new one after considering the costs that will accrue from such a move. Such costs include loss of investments in advertising, material structures, research and market analysis.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Esther Ejim
By Esther Ejim
Esther Ejim, a visionary leader and humanitarian, uses her writing to promote positive change. As the founder and executive director of a charitable organization, she actively encourages the well-being of vulnerable populations through her compelling storytelling. Esther's writing draws from her diverse leadership roles, business experiences, and educational background, helping her to create impactful content.
Discussion Comments
Esther Ejim
Esther Ejim
Esther Ejim, a visionary leader and humanitarian, uses her writing to promote positive change. As the founder and...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.