Which of the following is true about a monopoly?

• A. A monopoly is the sole seller of a product with no close substitutes.
• B. A monopoly faces a perfectly elastic demand curve.
• C. A monopoly cannot influence the market price of its product.
• D. In a monopoly, there are many firms competing in the market.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definition of a monopoly. A monopoly is a market structure where there is only one seller or producer of a product or service, and there are no close substitutes available to consumers.
2. Step 2: Analyze the demand curve faced by a monopoly. Since the monopolist is the sole seller, the demand curve it faces is the market demand curve, which is typically downward sloping, meaning the monopolist can influence the price by adjusting the quantity supplied.
3. Step 3: Evaluate the elasticity of the demand curve for a monopoly. Unlike a perfectly competitive firm that faces a perfectly elastic demand curve (horizontal line), a monopoly faces a downward sloping demand curve, so the demand is not perfectly elastic.
4. Step 4: Consider the ability of the monopoly to influence price. Because the monopolist is the only seller, it has market power and can set the price, unlike firms in perfect competition that are price takers.
5. Step 5: Review the number of firms in a monopoly market. By definition, a monopoly has only one firm, so the statement that there are many firms competing is false.