Market power leads to market failure when it results in
A)Decreased market output.
B)Lower market prices.
C)Normal economic profits.
D)The demise of the industry.

Question

Quizplus · Accepted Answer

Market power, or the ability of a single firm or group of firms to influence market prices and output, can lead to market failure when it results in decreased market output. This is because fewer goods and services are being produced than would be in a competitive market, leading to a welfare loss for society. While market power can lead to higher prices, this is not necessarily indicative of market failure as higher prices may be compensated by higher quality or innovation. Additionally, normal economic profits are a desirable outcome in a functioning market, and the demise of an industry may be a natural result of technological advancements or changes in consumer preferences.

Market Power Leads to Market Failure When It Results in