Which statement best describes a monopoly?

• A. Firms can freely enter and exit the market without barriers.
• B. Firms are price takers and cannot influence the market price.
• C. Many firms compete by selling identical products.
• D. A single firm is the sole producer of a product with no close substitutes.

Answer: (D)

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, there are significant barriers to entry that prevent other firms from entering the market freely.
3. Note that monopolies are price makers, meaning they have the power to influence the market price because they are the only supplier.
4. Contrast this with perfect competition, where many firms sell identical products and are price takers with free entry and exit.
5. Conclude that the statement 'A single firm is the sole producer of a product with no close substitutes' best describes a monopoly.