Which of the following is a reason that a monopolist is considered a price maker?

• A. A monopolist always produces at the point where marginal cost equals price.
• B. A monopolist faces the market demand curve and can set the price by choosing the quantity produced.
• C. A monopolist cannot influence the market price due to competition.
• D. A monopolist has many close substitutes for its product.

Answer: (B)

Verified step by step guidance

1. Understand the concept of a price maker: A price maker is a firm that has the power to influence the market price of its product rather than taking the price as given.
2. Recall that a monopolist is the sole producer in the market, meaning it faces the entire market demand curve for its product.
3. Since the monopolist controls the quantity supplied, it can choose the quantity to produce and then set the price based on the demand curve at that quantity.
4. Recognize that this ability to set price by choosing quantity distinguishes a monopolist from firms in perfectly competitive markets, which are price takers.
5. Therefore, the reason a monopolist is considered a price maker is because it faces the market demand curve and can set the price by choosing the quantity produced.