ECONOMICS
COMPETITION AND MARKET STRUCTURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a price taker
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able to ignore the demand for its product when setting price
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able to set the price for its product
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able to earn only a normal profit in the long run
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Detailed explanation-1: -A monopolist is considered to be a price maker, and can set the price of the product that it sells. However, the monopolist is constrained by consumer willingness and ability to purchase the good, also called demand.
Detailed explanation-2: -A monopoly price is set by a monopoly. A monopoly occurs when a firm lacks any viable competition and is the sole producer of the industry’s product. Because a monopoly faces no competition, it has absolute market power and can set a price above the firm’s marginal cost.
Detailed explanation-3: -A monopolist can change its product’s price by changing the quantity supplied of the product.
Detailed explanation-4: -Although no monopoly can practice perfect price discrimination, it does simplify the analysis, because its marginal revenue curve is exactly equal to the market demand curve. Therefore, like for a competitive firm, marginal revenue equals market price.