In a monopoly, what is the firm’s position regarding pricing?

In a monopoly, what is the firm’s position regarding pricing?

• A. The firm is a price taker
• B. The firm is a price maker
• C. The firm has no control over prices
• D. The firm must follow the market price

Answer: (B)

In a monopoly, the firm is a price maker because it is the sole supplier of a particular good or service in the market. Unlike in competitive markets where multiple firms produce identical products and must accept the market price, a monopolist has the power to set prices above marginal cost because it is the only source of the product. This ability stems from the lack of competition, giving the monopolist control over the quantity of output it decides to produce. By adjusting the quantity supplied, the monopolist can influence the market price, allowing it to maximize profits. The downward-sloping demand curve that a monopolist faces indicates that to sell more units, the firm must lower the price, further reinforcing its role as a price maker in the market.

In a monopoly, the firm is a price maker because it is the sole supplier of a particular good or service in the market. Unlike in competitive markets where multiple firms produce identical products and must accept the market price, a monopolist has the power to set prices above marginal cost because it is the only source of the product. This ability stems from the lack of competition, giving the monopolist control over the quantity of output it decides to produce. By adjusting the quantity supplied, the monopolist can influence the market price, allowing it to maximize profits. The downward-sloping demand curve that a monopolist faces indicates that to sell more units, the firm must lower the price, further reinforcing its role as a price maker in the market.