Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is the primary feature of a monopoly?

1. A market with several producers

2. A market with only one producer

3. A market with two competing firms

4. A market with many firms under price control

The correct answer is: A market with only one producer

The primary feature of a monopoly is characterized by a market with only one producer. In a monopolistic market structure, a single company or entity holds the exclusive control over the production and supply of a product or service. This means that the monopolist can dictate prices and market conditions because there are no direct competitors to challenge their influence. As a result, consumers lack alternative choices and must accept the price set by the monopolist, which can often lead to higher prices and potentially reduced quality or innovation compared to markets with competition. The absence of competition allows the monopolist to maximize profits without the constraints that a competitive market scenario would impose. In contrast, the other options reflect market structures that do not present the clear domination characteristic of a monopoly. A market with several producers would indicate a competitive environment, with multiple firms vying for customers. Similarly, a market with two competing firms exemplifies a duopoly rather than a monopoly, introducing competition that affects pricing and output decisions. Lastly, a market with many firms under price control suggests some level of regulatory intervention or competition, which contradicts the essence of a monopolistic market.