What is a monopoly?

A monopoly is a market structure where one firm dominates the ENTIRE Industry.

What are the characteristics of a monopoly?

• There are high barriers to entry and exit.
• They benefit from economies of scale.
• Firms are neither productively or allocatively efficient.
• A monopoly is able to make an abnormal/supernormal profit. 
• They produce a unique product, there are no (close) substitutes available.
• A monopoly can be dynamically efficient - The firm can re-invest their profits. 
  

Disadvantages:

1. Consumer's choice is restricted. 
2. Consumers pay higher prices (exploited).
3. Resources not allocated in an optimal way. 
4. No innovation due to lack of competition.

Advantages:

1. If monopoly reinvests profits into Research and Development, then consumers have more choice.
2. Since monopolies can exploit economies of scale, they have lowers costs, so prices may decrease.

Example:

As you can see from the above diagram, Microsoft is clearly a monopoly as it owns about 90 % of the Market.