Multiple Choice
Which of the following describes a benefit of monopolies relative to perfectly competitive markets?
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12. Monopoly
Characteristics of Monopoly
Multiple Choice
Which of the following is true under monopoly?
A
The monopolist faces the entire market demand curve.
B
There are many firms producing identical products.
C
Price equals marginal cost at the profit-maximizing output.
D
Firms can freely enter and exit the market.
Verified step by step guidance1
Understand the characteristics of a monopoly: A monopoly is a market structure where a single firm is the sole producer of a product with no close substitutes.
Recall that in a monopoly, the firm faces the entire market demand curve because it is the only seller, so the demand curve for the monopolist's product is the market demand curve.
Contrast this with perfect competition, where there are many firms producing identical products, and each firm faces a perfectly elastic demand curve at the market price.
Remember that in a monopoly, price does not equal marginal cost at the profit-maximizing output; instead, the monopolist sets output where marginal revenue equals marginal cost and charges a price based on the demand curve, which is typically higher than marginal cost.
Note that free entry and exit of firms characterize perfectly competitive markets, not monopolies, where barriers to entry prevent other firms from entering the market.
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