A firm has market power
A) When it can profitably charge any price of it's choosing
B) When it is characterized as a price taker
C) When it can profitably charge a price that is above its marginal cost
D) Only when it is the sole firm producing in a market

Question

Quizplus · Accepted Answer

Market power refers to a firm's ability to influence the market price of its product. When a firm can charge a price above its marginal cost, it implies that it has market power. This is because the firm can dictate the price without worrying about losing customers to competitors who charge lower prices. However, the other options are incorrect. A firm does not have market power if it can't charge any price of its choosing (A). In contrast, firms that are characterized as price takers do not have market power as they must accept the prevailing market price (B). Furthermore, a firm can have market power even if it is not the only producer in the market (D).

A Firm Has Market Power