A firm has market power if it can:

• A. influence the price of the product it sells
• B. maximize profits by taking the market price as given
• C. produce at the lowest possible average cost
• D. sell its product in perfectly competitive markets

Answer: (A)

Verified step by step guidance

1. Understand the concept of market power: Market power refers to a firm's ability to influence the price of the product it sells, rather than being a price taker.
2. Recall that in perfectly competitive markets, firms are price takers, meaning they accept the market price and cannot influence it.
3. Recognize that a firm with market power can set or influence the price above marginal cost to maximize profits.
4. Eliminate options that describe firms in perfectly competitive markets or focus solely on cost minimization, as these do not imply market power.
5. Conclude that the defining characteristic of market power is the ability to influence the product's price.