A monopolist has market power because it
A)Faces a downward-sloping demand curve for its own output.
B)Can raise price as much as it wishes and not lose any customers.
C)Is a price taker.
D)Is regulated by the government.

Question

Quizplus · Accepted Answer

A monopolist faces a downward-sloping demand curve for its own output, which means that it has some degree of control over the price it charges for its product. It can raise the price, but it will sell fewer units. The extent to which it can raise prices without losing too many customers depends on the elasticity of demand. Therefore, a monopolist has market power. Choice B is incorrect because the monopolist cannot raise prices without losing any customers unless the demand is perfectly inelastic, which is rarely the case. Choice C is incorrect because a price taker has no market power. Choice D is incorrect because a regulated monopolist still has market power, but it is subject to some constraints imposed by the government.

A Monopolist Has Market Power Because It