Market power is illegal.
A) True, no one is allowed to charge a price greater than marginal cost.
B) False, firms can freely choose their prices.
C) True, no one is allowed to charge a price greater than average cost.
D) False, because market power guarantees price equal to average cost.

Question

Quizplus · Accepted Answer

Market power is not illegal by itself but using it to engage in anticompetitive behavior such as setting prices above competitive levels or preventing entry of competitors is illegal. Therefore, firms can freely choose their prices as long as they do not engage in anticompetitive behavior.

Market Power Is Illegal