Question

A firm is accused of using illegal methods to earn monopoly profits. Which of the following information best refutes this claim?

a. The firm faces an elasticity of demand of -0.75.
b. The firm faces an elasticity of demand 0f -5.35.
c. The firm is making a profit in the SR.
d. The firm sells other unrelated products.
e. The firm’s product has few substitutes.

Answer 1

c. The firm is making a profit in the short run. This means that the firm's methods are generating legal profits, which refutes the claim of using illegal methods.

Answer 2

e. The firm’s product has few substitutes.

This information best refutes the claim that the firm is using illegal methods to earn monopoly profits. If the firm's product has few substitutes, it means that consumers have limited alternative options to switch to, even if the firm were to increase its prices due to its monopoly position. This lack of substitutes reduces the competitive pressure on the firm and makes it less likely that it needs to resort to illegal methods to maintain its profits.