What's the problem then if there's not enough work for 2? You're close to a barter economy at that point. The blacksmith can't gouge the customers he depends on for everything else.
The difference is that in a competitive market, this self-interest happens to lead producers to do what is in the public interest, but in the monopoly case it generally leads to lower production and higher prices than would be optimal. For more explanation, here's a Wikipedia article that jibes with my college Intro to Econ class: