A firm with monopoly power is able to set a markup price that is:
A) lower than prices on similar goods sold by competitive firms.
B) the same as the prices on similar goods sold by competitive firms.
C) higher than prices on similar goods sold by competitive firms.
D) the maximum price a market participant will pay for similar goods.

Question

Quizplus · Accepted Answer

A firm with monopoly power can raise prices above what would be considered a competitive price because there are no close substitutes available in the market. This ability to increase prices is often referred to as a markup, which is the difference between the firm's cost of production and the price it charges for its product. Therefore, a firm with monopoly power is able to set a markup price that is higher than prices on similar goods sold by competitive firms.

A Firm with Monopoly Power Is Able to Set a Markup