Which of the following would erode the monopoly pricing power of a firm that was controlling a market?
A)New technology developed by the firm that lowered long run average costs.
B)The development of substitutes for the product by other firms.
C)A tax on corporate profits.
D)All of these would reduce the monopoly power of the firm.

Question

Quizplus · Accepted Answer

The development of substitutes for the product by other firms would increase competition in the market, making it more difficult for the monopolist to maintain its high prices. A reduction in long run average costs (option A) could potentially increase the monopolist's profits, but it would not necessarily erode their pricing power. A tax on corporate profits (option C) may reduce the monopolist's profits, but it does not directly address their ability to set high prices.

Which of the Following Would Erode the Monopoly Pricing Power