The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7

-Which of the following statements is true?
A)A firm that has monopoly power is a price maker.
B)A firm that has monopoly power is a price taker.
C)A firm that has monopoly power earns exorbitant profits.
D)A firm that has monopoly power has a perfectly elastic demand curve.
E)A firm that has monopoly power has a perfectly inelastic demand curve.

Question

The figure given below shows the aggregate demand and supply curves of a perfectly competitive market.Figure 10.7
 
-Which of the following statements is true?
A)​A firm that has monopoly power is a price maker. 
B)​A firm that has monopoly power is a price taker. 
C)​A firm that has monopoly power earns exorbitant profits. 
D)​A firm that has monopoly power has a perfectly elastic demand curve. 
E)​A firm that has monopoly power has a perfectly inelastic demand curve.

Quizplus · Accepted Answer

The figure shows a perfectly competitive market, in which all firms are price takers and cannot influence the market price. A firm that has monopoly power, on the other hand, has the ability to set its own price and is therefore a price maker. Therefore, option A is the correct statement. Options B, C, D, and E are incorrect as they do not apply to a firm with monopoly power in this context.

The Figure Given Below Shows the Aggregate Demand and Supply