Which of the following statements best describes a monopoly?

• A. A single firm is the sole producer of a product with no close substitutes.
• B. Many firms compete by selling identical products.
• C. Firms are price takers in the market.
• D. Firms can freely enter and exit the market.

Answer: (A)

Verified step by step guidance

1. Understand the definition of a monopoly: It is a market structure where a single firm is the sole producer of a product with no close substitutes.
2. Recognize that in a monopoly, the firm has significant market power, meaning it can influence the price of the product because there are no competitors offering close alternatives.
3. Contrast this with perfect competition, where many firms sell identical products, and firms are price takers (they accept the market price without influence).
4. Note that in a monopoly, barriers to entry prevent other firms from entering the market freely, unlike in competitive markets where firms can enter and exit easily.
5. Therefore, the statement that best describes a monopoly is: 'A single firm is the sole producer of a product with no close substitutes.'