Which of the following is a necessary characteristic of a monopoly?

• A. The firm produces at the socially optimal output level.
• B. The firm is the sole seller of a product with no close substitutes.
• C. The firm faces perfectly elastic demand.
• D. There are no barriers to entry in the market.

Answer: (B)

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 seller of a product with no close substitutes.
2. Analyze each option in the context of monopoly characteristics:
3. Option 1: 'The firm produces at the socially optimal output level' — This is generally not true for monopolies because they tend to produce less than the socially optimal quantity to maximize profits.
4. Option 3: 'The firm faces perfectly elastic demand' — This describes a perfectly competitive firm, not a monopoly. A monopolist faces a downward-sloping demand curve.
5. Option 4: 'There are no barriers to entry in the market' — This contradicts the monopoly condition, as monopolies typically exist because of high barriers to entry preventing other firms from entering.