WAEC Economics 2025 Theory — Question 6

Model answer

(a) Monopoly is a market structure with a sole producer or supplier of a commodity that has no close substitute. (b) Factors giving rise to monopoly: (i) Resources barrier - large capital requirements to start the business may give the firm monopoly power; (ii) Barrier to entry - legal restrictions preventing other firms from entering the industry; (iii) Technological barrier - possession of technology not available to others gives the firm monopoly power. (c) The monopolist is in equilibrium where MC = MR, at output 0q. At this output, cost per unit is 0C and price (average revenue) is 0P. Since price exceeds average cost, the firm earns a super-normal profit, shown by the shaded rectangle CPae on the diagram (bounded by the AC and AR curves at the equilibrium output).