Question

For a firm to have market power, it must ________?

1) have a large market share
2) be the only firm in the market
3) have the ability to set prices
4) have a unique product

Answer 1

4) have the ability to set prices

Answer 2

Market power is determined by factors like market share, number of competitors, ability to set prices, and uniqueness of the product.

Step-by-step explanation:

Market power refers to the ability of a firm to influence the market prices and quantity of goods and services. To have market power, a firm must possess certain characteristics:

1. Have a large market share: A firm with a large market share is more likely to have the ability to set prices and influence the market.
2. Be the only firm in the market: A monopoly, where there is only one firm in the market, has the highest level of market power as it faces no competition and can set prices as it wishes.
3. Have the ability to set prices: A firm with market power can control prices and charge higher prices compared to competitive markets.
4. Have a unique product: While not necessary for all cases, having a unique product can give a firm an edge over competitors and provide a certain level of market power.