Suppose a monopolist faces the following costs for various levels of output. Which of the following is a key characteristic that distinguishes a monopoly from a perfectly competitive firm?

• A. The monopolist is a price taker.
• B. The monopolist faces a perfectly elastic demand curve.
• C. The monopolist is the sole seller of a product with no close substitutes.
• D. The monopolist can freely enter and exit the market.

Answer: (C)

Verified step by step guidance

1. Understand the basic market structures: A perfectly competitive firm is a price taker and faces a perfectly elastic demand curve, meaning it can sell any quantity at the market price but cannot influence the price.
2. Recall that a monopolist is the sole seller in the market, which means it faces the entire market demand curve and can influence the price by adjusting output.
3. Identify that the key characteristic distinguishing a monopoly from perfect competition is the lack of close substitutes and the monopolist's ability to set prices, unlike a perfectly competitive firm that cannot influence prices.
4. Recognize that entry and exit conditions differ: perfect competition allows free entry and exit, while monopolies typically have barriers to entry that prevent other firms from entering the market.
5. Conclude that the correct distinguishing feature is that the monopolist is the sole seller of a product with no close substitutes, which gives it market power to set prices.