Question

Which of the following statements about monopoly power is correct?

A.Monopoly power is the power attained solely by single firm monopolists.
B.Monopoly power is the power to raise price above average cost without facing new entry of firms.
C. Monopoly power is granted by the government to monopolists.
D.Firms attaining monopoly power always set the price at the maximum.

Answer 1

Monopoly power refers to the ability of a firm to control the price and quantity of a product or service. The correct statement is that monopoly power is the power to raise price above average cost without facing new entry of firms.

Step-by-step explanation:

Monopoly power refers to the power that a single firm has when it dominates a market. It is the ability of a firm to control the price and quantity of a product or service.

The correct statement is B. Monopoly power is the power to raise price above average cost without facing new entry of firms. This means that a monopolist can charge a price higher than its average cost of production without fear of new competitors entering the market.

For example, let's consider a monopolist that produces and sells smartphones. If the monopoly power is strong, the monopolist can set a price for the smartphones that is higher than the cost of production, maximizing its profits.