Which of the following statements is true?
A) A monopoly is a price-taker because it faces a downward-sloping demand curve.
B) A monopoly is a price-maker because it faces a downward-sloping demand curve.
C) A perfectly competitive firm is a price-taker because it faces a downward-sloping demand curve.
D) A perfectly competitive firm is a price-maker because it faces a downward-sloping demand curve.

Question

Quizplus · Accepted Answer

A monopoly is a price-maker because it has the power to set its own price due to its market control. This market control is a result of there being no close substitutes for its product, which gives it a downward-sloping demand curve. In contrast, a perfectly competitive firm is a price-taker because it is a small part of the market and must accept the market price set by supply and demand forces. Therefore, statement A and C are false, and statement D is contradictory as a perfect competition implies that firms are price-takers.

Which of the Following Statements Is True