Other things being equal, the markup above marginal cost that a monopolist charges will be:
A) higher when there are more substitutes for the monopolist's product.
B) lower when there are more substitutes for the monopolist's product.
C) the same, no matter the number of substitutes for the monopolist's product.
D) zero if there are any substitutes for the monopolist's product.

Question

Quizplus · Accepted Answer

When there are more substitutes for the monopolist's product, the demand for the monopolist's product becomes more elastic, meaning consumers can easily switch to a substitute if the monopolist charges a high price. Therefore, the monopolist will have to lower its price and markup to remain competitive in the market.

Other Things Being Equal, the Markup Above Marginal Cost That