Firm X is a single seller of good X. There are, however, two substitutes for good X. Given this,
A)firm X cannot be a monopolist because the theory of monopoly assumes there are no substitutes for the good the single seller sells.
B)firm X may be a monopolist because the two substitutes may be close substitutes.
C)firm X cannot be a monopolist because if substitutes exist for the good it produces, its demand curve is horizontal but monopolists face downward-sloping demand curves.
D)none of the above

Question

Quizplus · Accepted Answer

Firm X can still be considered a monopolist even if there are substitutes for its product, as long as those substitutes are not perfect substitutes. The presence of close substitutes does not preclude the firm from having significant control over the price and output of its product, which is a characteristic of monopoly power. Monopolists face a downward-sloping demand curve, but this does not mean there cannot be any substitutes; it simply means the firm has significant market power over its specific product.

Firm X Is a Single Seller of Good X