Compared to competitive firms, firms with market power are considered: a

Marketing Jan 14, 2021

Compared to competitive firms, firms with market power are considered:

a. technologically superior since they generate new inventions more efficiently than competitive firms.

b. unstable in the long run since they will always earn long-run losses even if they earn short-run profits.

c. inefficient since they have lower output and set a higher price.

d. inferior since they always earn losses.

Expert Solution

The correct answer is c. inefficient since they have lower output and set a higher price.

Market structures such as monopolies that give power to firms provide a lower output at a higher price than markets such as perfect competition that are competitive. This lower output and higher price reduce the welfare to society and cause deadweight loss.

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