Market power a

Marketing Jan 15, 2021

Market power

a. means that a firm has price-setting power.

b. is absent for perfectly competitive firms.

c. is weaker the more inelastic is demand.

d. drives firms to expand output until average cost is minimized.

e. both a and b

Expert Solution

The correct answer is (e). both a (means that a firm has price-setting power) and b (is absent for perfectly competitive firms)

Market power is the ability of firms to set price above the marginal cost and it is called markup price. In competitive firms (participants) set price equal to Marginal cost (MC) thus there is no market power. In monopoly, there is high degree of market power because he's able to set price above the marginal cost.

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