Multiple Choice
Which statement is true about the relationship between a monopoly and its competition in a market?
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12. Monopoly
Characteristics of Monopoly
Multiple Choice
Which of the following best explains why sellers in a monopoly market have significant power over price?
A
Government regulation sets the price for all goods.
B
There are no close substitutes for the product offered by the monopolist.
C
There are many firms competing in the market.
D
Buyers have perfect information about all products.
Verified step by step guidance1
Understand the concept of a monopoly: A monopoly is a market structure where a single seller dominates the entire market for a particular good or service.
Recognize that in a monopoly, the seller is the sole provider of a product with no close substitutes, which means consumers cannot easily switch to another product if the price changes.
Recall that the lack of close substitutes gives the monopolist significant control over the price because consumers have limited alternatives.
Contrast this with competitive markets where many firms offer similar products, limiting individual sellers' power to influence prices.
Conclude that the key reason for a monopolist's price-setting power is the absence of close substitutes, not government regulation, many competing firms, or perfect information among buyers.
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