Which of the following is evidence of market power?

Question

Quizplus · Accepted Answer

When a firm has market power, it can potentially restrict output and charge a higher price than a perfect competitor would. Therefore, a profit-maximizing output that is less than the efficient scale (the output level at which average total cost is minimized) is evidence of market power, as the firm is choosing to forgo potential profits by producing less than what it could at the lowest cost. Output fixed despite cost changes (B) can be a sign of a natural monopoly, but not necessarily market power. A horizontal demand curve (C) suggests perfect competition, not market power. The firm having no control over price (D) is also indicative of perfect competition. Optimal output minimizing average total cost (E) suggests efficient production, but not necessarily market power.

Which of the Following Is Evidence of Market Power