Multiple Choice
Which of the following is a key characteristic that distinguishes a monopoly from a perfectly competitive market?
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12. Monopoly
Characteristics of Monopoly
Multiple Choice
A government-created monopoly arises when:
A
barriers to entry are eliminated by government regulation
B
multiple firms collude to set prices and restrict output
C
a firm achieves monopoly status by being the lowest-cost producer in the market
D
the government grants exclusive rights to a single firm to produce a good or service
Verified step by step guidance1
Understand the concept of a government-created monopoly: it occurs when the government grants exclusive rights to a single firm to produce a good or service, effectively preventing other firms from entering the market.
Identify the role of barriers to entry: in a government-created monopoly, these barriers are established or maintained by government regulation, not eliminated.
Distinguish this from other types of monopolies: for example, a natural monopoly arises when a firm is the lowest-cost producer, and collusion involves multiple firms cooperating, not a single firm with exclusive rights.
Recognize that government-created monopolies are often justified by the government to control essential services or goods, ensuring regulation and oversight.
Summarize that the defining feature is the government's exclusive grant of production rights, which legally restricts competition and creates the monopoly.
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