If a firm has substantial market power, it must be operating in an industry that would be classified as:
A) a monopoly or oligopoly.
B) perfectly competitive.
C) monopolistically competitive.
D) perfectly competitive or monopolistically competitive.
E) perfectly competitive or a monopoly.

Question

Quizplus · Accepted Answer

Substantial market power refers to a firm's ability to control prices and output in a market, which is typically only possible in monopolistic or oligopolistic markets where there are few competitors. In a perfectly competitive market, firms have no market power as they are price takers and cannot influence market conditions. In monopolistically competitive markets, firms have some ability to set prices but not to the same degree as in monopolies or oligopolies. Therefore, the only option that fits the description of a market where a firm has substantial market power is A, a monopoly or oligopoly.

If a Firm Has Substantial Market Power, It Must Be