Which of the following statements about monopoly power is correct?
A) Monopoly power is the power attained solely by dual firm monopolists.
B) Monopoly power is the power to raise prices above average cost without facing new entry of firms.
C) Monopoly power is only generated by governments.
D) Firms attaining monopoly power always set the price at the marginal cost.

Question

Quizplus · Accepted Answer

Monopoly power is the ability of a firm or a group of firms to raise prices above marginal cost and sustain that price level in the long run without facing new entry of firms in the market. This is due to the absence of close substitutes for the product or service offered by the monopolist. Monopoly power can be achieved by any firm, not just a dual firm monopolist. Monopolies can also arise due to legal barriers or economies of scale. Finally, firms that attain monopoly power do not necessarily set prices at marginal cost, as they have the ability to charge a price premium due to the lack of competition.

Which of the Following Statements About Monopoly Power Is Correct