Which of the following scenarios would represent a monopoly?

• A. A single firm is the only provider of electricity in a city, with no close substitutes available.
• B. Several firms compete to sell smartphones in a large market.
• C. Many small farmers sell identical wheat in a competitive market.
• D. Two companies dominate the soft drink industry and compete aggressively.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definition of a monopoly. A monopoly exists when a single firm is the sole provider of a good or service in a market, and there are no close substitutes available. This firm has significant market power to influence price and output.
2. Step 2: Analyze the first scenario: 'A single firm is the only provider of electricity in a city, with no close substitutes available.' Since there is only one firm and no substitutes, this fits the definition of a monopoly.
3. Step 3: Analyze the second scenario: 'Several firms compete to sell smartphones in a large market.' Multiple firms competing means this is not a monopoly; it is closer to a competitive or oligopolistic market.
4. Step 4: Analyze the third scenario: 'Many small farmers sell identical wheat in a competitive market.' Many sellers and identical products indicate perfect competition, not a monopoly.
5. Step 5: Analyze the fourth scenario: 'Two companies dominate the soft drink industry and compete aggressively.' Two dominant firms indicate an oligopoly, not a monopoly, because there is more than one firm.