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Monopoly power results in _____
Monopoly power results in _____.
a. a lower quantity than if the industry was perfectly competitive
b. a higher price than if the industry was perfectly competitive
c. a lower price than if the industry was perfectly competitive
d. both a and b
Expert Solution
The correct option is d. both a and b.
Monopoly power is associated with a firm that has a significant market share and whose product/service does not have any substitute or simply close substitutes. That is to say, the firm has control over the price which means that it is a price setter. Additionally, this type of firm can limit the supply of the product/service to increase prices without losing all consumers. This is opposite to perfect competition where no firm has enough market share to be a price setter. As a consequence, firms with monopolistic power can sell lower quantities and set higher prices than in perfect competition.
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