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Question
Microeconomics
Posted 7 months ago
Mammoth Inc. sells computers in a monopoly market.
Which of the following is true about this market?
Choose 1 answer:
A The firm earns zero economic profit in the long run.
B The seller can charge any price they want.
(C) There is a single firm selling a product with no close substitutes.
(D) There are no, or low, barriers to entry in this market.
(E) Price equals marginal revenue.
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Answer from Sia
Posted 7 months ago
Solution
a
Market Structure: In a monopoly market, there is a single firm that dominates the market and sells a product with no close substitutes. This is a defining characteristic of a monopoly
b
Barriers to Entry: Monopolies typically have high barriers to entry, which prevent other firms from entering the market and competing with the monopolist. These barriers can be due to factors like high startup costs, control over essential resources, or government regulations
c
Economic Profit: Unlike firms in perfectly competitive markets, a monopolist can earn positive economic profits in the long run due to the lack of competition and high barriers to entry
d
Pricing Power: A monopolist has significant pricing power and can influence the market price of its product. However, it cannot charge any price it wants without considering the demand curve. The price is set where marginal revenue equals marginal cost to maximize profit
e
Price and Marginal Revenue: In a monopoly, the price is greater than marginal revenue because the monopolist faces a downward-sloping demand curve. This is different from a perfectly competitive market where price equals marginal revenue
Answer
(C) There is a single firm selling a product with no close substitutes.
Key Concept
Monopoly Market Structure
Explanation
In a monopoly market, there is only one firm that sells a unique product with no close substitutes, which allows the firm to have significant control over the market price and earn long-term economic profits.
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