Which statement is true about the relationship between a monopoly and its competition in a market?

• A. A monopoly operates in a market with free entry and exit for other firms.
• B. A monopoly faces many firms producing identical products.
• C. A monopoly must always lower its price to compete with rivals.
• D. A monopoly has no close competitors in its market.

Answer: (D)

Verified step by step guidance

1. Understand the definition 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 the characteristics of a monopoly: It typically has significant market power, faces no direct competition, and can influence the price of its product.
3. Analyze the options given: For example, a monopoly does not operate in a market with free entry and exit because barriers prevent other firms from entering.
4. Recognize that a monopoly does not face many firms producing identical products; that situation describes perfect competition.
5. Conclude that the true statement is that a monopoly has no close competitors in its market, which aligns with the fundamental definition of monopoly.