Which of the following is true under a monopoly?

• A. Price equals marginal cost at the profit-maximizing output.
• B. The firm faces a downward-sloping demand curve.
• C. Firms can freely enter and exit the market.
• D. There are many sellers producing identical products.

Answer: (B)

Verified step by step guidance

1. Understand the characteristics of a monopoly: A monopoly is a market structure where a single firm is the sole producer of a product with no close substitutes.
2. Recall that in a monopoly, the firm faces the entire market demand curve, which is typically downward-sloping. This means the firm can influence the price by adjusting the quantity it produces.
3. Recognize that unlike in perfect competition, a monopolist's price does not equal marginal cost at the profit-maximizing output. Instead, the monopolist sets output where marginal revenue equals marginal cost and charges a price based on the demand curve.
4. Note that free entry and exit of firms is a feature of perfectly competitive markets, not monopolies. In a monopoly, barriers to entry prevent other firms from entering the market.
5. Remember that many sellers producing identical products is a characteristic of perfect competition, not monopoly, where there is only one seller.