What happens when a monopoly exists in a market?

When a monopoly exists in a market, the firm has control over prices and production. This is a key characteristic of monopolistic markets. Unlike in competitive markets where many firms influence prices through competition, a monopolist is the sole producer of a product or service, allowing it to dictate pricing levels and output quantities without external pressures from competitors.

The monopolistic firm can set higher prices than would prevail in a competitive market, often leading to reduced consumer welfare since there is no competition to provide alternative options. Additionally, a monopolist may choose to produce less than the socially optimal quantity of goods to maximize profits, further demonstrating its control over the market.

In contrast to other options, demand does not solely determine prices in a monopoly since the monopolist has the power to influence prices. Competition does not exist in a monopoly, so prices are not driven down through competitive pressure, and generally, there are not many substitutes available, further reinforcing the monopolist's control over the market.