Market power
A)is a source of profit.
B)is an assumption of the second welfare theorem.
C)is a source of inefficiency.
D)is an assumption of the first welfare theorem.

Question

Quizplus · Accepted Answer

Market power allows a firm to raise prices above the competitive level, resulting in higher profits for the firm but also a loss of welfare for consumers. This leads to inefficiency in the market as resources are allocated towards the production of goods/services that may not be the most socially optimal. Therefore, market power is a source of inefficiency.

Market Power