The development of market power by a firm is considered to be a market failure because firms with market power will

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When a firm has market power, it can restrict output and charge a higher price than what would be socially optimal. This leads to a deadweight loss, where the economic surplus that could have been generated is lost. Thus, market power is considered a market failure as it results in an inefficient allocation of resources. Option A is incorrect because a firm with market power will charge a higher price instead of a lower price. Option B is a separate issue related to externalities, not market power. Option D is also incorrect as firms with market power will still respond to consumer demand to maximize their profits.

The Development of Market Power by a Firm Is Considered