Monopoly is mitigated only by competition from substitutes. The firm is able to choose the price-quantity combination to maximize its profits. The monopolist producer tends equates marginal revenue and marginal cost rather than price equal to marginal cost. In theory the monopolist is considered inefficient because the quantity supplied is less and the price higher than under perfect competition. The inverse of a monopoly or monopsony can also exist, i.e. market power exercised by a single buyer facing many producers.
Monopoly exist for one or more of four reasons.
First, one firm may control the entire supply of a basic input. Third, a firm may acquire control over product through a patent on a basic process of production or the product itself, e.g. IPRs like a drug patent. Fourth, a firm may become a monopolist because government awards an exclusive market franchise, e.g. electric power, water supply, etc. While a monopoly may exist in a given market, a monopolist is seldom entire insulated from the economy as a whole. All commodities are rivals for the consumer s limited income.