A firm with market power ________.
A) faces a horizontal demand curve
B) faces a downward-sloping demand curve
C) has no ability to affect price
D) has long-run economic profits of zero

Question

Quizplus · Accepted Answer

A firm with market power faces a downward-sloping demand curve because it can influence the price by adjusting its output level. Unlike a perfectly competitive firm that faces a horizontal demand curve, a firm with market power has pricing authority to some extent. Moreover, a firm with market power can earn long-run economic profits, which is not possible in a perfectly competitive market where firms earn zero economic profit in the long run. Therefore, options A, C, and D are incorrect.

A Firm with Market Power ________