Which of the following best describes a purely monopolistic firm?

• A. It faces a perfectly elastic demand curve.
• B. It is the sole seller of a product with no close substitutes.
• C. It is a price taker in the market.
• D. It can freely enter and exit the market without barriers.

Answer: (B)

Verified step by step guidance

1. Understand the characteristics of different market structures, focusing on monopoly and perfect competition.
2. Recall that a purely monopolistic firm is defined as the sole seller of a product with no close substitutes, meaning it has significant market power to set prices.
3. Recognize that a perfectly elastic demand curve is characteristic of a perfectly competitive firm, not a monopolist, because monopolists face a downward-sloping demand curve.
4. Note that being a price taker applies to firms in perfect competition, where individual firms cannot influence the market price, unlike a monopolist who is a price maker.
5. Consider that free entry and exit without barriers is a feature of perfectly competitive markets, whereas monopolies typically have high barriers to entry preventing other firms from entering the market.