Which of the following best describes a monopoly in microeconomics?

• A. A single firm dominates the market and is the sole producer of a good or service with no close substitutes.
• B. A market where entry and exit are easy and firms are price takers.
• C. Firms in the market sell differentiated products and have some control over price.
• D. Many firms compete in the market, each selling identical products.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definition of a monopoly in microeconomics. A monopoly exists when a single firm is the sole producer of a good or service in a market, and there are no close substitutes available to consumers.
2. Step 2: Recognize the key characteristics of a monopoly: a single seller, no close substitutes, and high barriers to entry that prevent other firms from entering the market.
3. Step 3: Compare the given options to the monopoly definition. Identify which option describes a market dominated by one firm with no close substitutes.
4. Step 4: Eliminate options that describe other market structures: perfect competition (many firms, identical products, price takers), monopolistic competition (many firms, differentiated products, some price control), and any market with easy entry and exit.
5. Step 5: Conclude that the option stating 'A single firm dominates the market and is the sole producer of a good or service with no close substitutes' best describes a monopoly.