The main source of natural market power for a monopoly firm is ________.
A) the existence of economies of scale in production
B) patents and copyrights
C) government-regulated pricing policy
D) the price elasticity of demand for the product produced by the firm

Question

Quizplus · Accepted Answer

The existence of economies of scale in production allows a monopoly firm to produce at a lower average cost than smaller competitors, which gives it a natural market power to control the price and output levels in the market. Patents and copyrights provide legal protection for the monopolist's exclusive right to produce a product, but they do not necessarily give the firm market power if there are close substitutes available. Government-regulated pricing policy can limit the monopoly's pricing flexibility, but it does not create a natural market power for the firm. The price elasticity of demand for the product produced by the firm can affect the firm's pricing strategy, but it is not a source of natural market power for the monopoly.

The Main Source of Natural Market Power for a Monopoly